Greenlane Holdings, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Founded in 2005, Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, vape devices, and lifestyle products. In 2021, we completed several acquisitions along with a transformative merger with KushCo Holdings, adding a significant industrial line of business to the Greenlane platform. These acquisitions strengthened our leading position as a consumer ancillary products business and significantly expanded our customer network, bringing strategic relationships with leading cannabis multi-state-operators (“MSOs”), cannabis single-state operators (“SSOs”), and Canadian licensed-producers (“LPs”). Greenlane is a leading ancillary cannabis company, providing a wide array of consumer ancillary products and industrial ancillary products to thousands of cannabis producers, processors, brands, and retailers (“Cannabis Operators”), in addition to specialty retailers, smoke shops and head shops, convenience stores, and consumers directly through our own proprietary web stores and large online marketplaces such as Amazon. 45 We have been developing a world-class portfolio of our own proprietary brands (the “Greenlane Brands”) and carefully curated third-party products that we believe will, over time, deliver higher margins and create long-term value for our customers and shareholders. Our wholly-owned Greenlane Brands includes our recently launched more affordable product line – Groove, innovative silicone pipes and accessories and premium ancillary product brand – Higher Standards. We also have category exclusive licenses for the premium Marley Natural branded products, as well as the K.Haring Glass Collection. Since the end of 2021, the Company has invested significantly in technology, including its e-commerce platforms, internal ERP systems, and B2B capabilities. Our world-class product portfolio is offered to customers through our proprietary, owned and operated e-commerce platforms which include Vapor.com, PuffItUp.com, HigherStandards.com, MarleyNaturalShop.com and Wholesale.Greenlane.com. These platforms allow us to reach customers directly with helpful resources and a seamless purchasing experience. We merchandise vaporizers, packaging, and other ancillary products in the United States, Canada, Europe and Latin America. We distribute products to retailers through wholesale operations and distribute products to consumers through our e-commerce platforms We operate our own distribution centers in the United States, while also utilizing third-party logistics (“3PL”) locations in Canada. We have made tremendous progress consolidating and streamlining our warehouse and distribution operations over the last two years. We manage our business in two different, but complementary, business segments. The first is the Consumer Goods segment, which focuses on serving consumers across wholesale, retail, and e-commerce operations—offering both our Greenlane Brands as well as ancillary products and accessories from select leading third-party brands, such as Storz and Bickel, Grenco Science, PAX, Arizer and more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands. In addition to our Consumer Goods segment, we have our Industrial Goods segment, which focuses on serving Cannabis Operators by providing ancillary products essential to their daily operations and growth, such as packaging and vaporization solutions, including our Greenlane Brand Pollen Gear. Refer to “Note 12— Segment Reporting” within Item 8 to this Annual Report on Form 10-K for additional information on our reportable segments. Plan to Accelerate Path to Profitability and Capitalize the Business In today’s economic landscape, particularly within the cannabis industry, achieving profitability and preserving working capital are paramount. At Greenlane, we are intensely focused on making our business profitable and well-capitalized for long-term sustainability. Our key initiatives include: 1. Technology Enhancements: We remain fully committed to improving our technology, particularly our B2B and e-commerce platforms, to provide a seamless shopping experience for our wholesale and retail customers. 2. Facility Footprint Rationalization: In 2023, we optimized our facilities footprint by reducing warehouse and office space while increasing operational efficiency and improving fulfillment practices. The full benefit of those efforts are expected to be realized in 2024. 3. Headcount Reduction: We have significantly reduced our headcount and associated salary expenses, focusing on maintaining a core group of key employees as we collectively right-size the business. 4. Cost Structure Optimization: We continue to reduce our overall cost structure while improving margins. In April 2023, we formed two strategic partnerships (described below in greater detail) to increase margins and significantly reduce working capital requirements in our Industrial Goods segment. Similarly, our Consumer Goods segment restructured arrangements with several third-party brands in 2022 and 2023 to reduce our working capital needs. 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. 46 During 2023 and 2024, the Company also entered into certain arrangements to reduce working capital requirements and improve its balance sheet. In April 2023, we successfully entered into two strategic partnerships which management believes will help significantly reduce our overall cost structure, enhance our margins and further support our facilities consolidation initiatives while also servicing and providing solutions to our customers. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a MarijuanaPackaging.com (“MJ Pack”), a leading provider of packaging solutions to the cannabis industry. As part of the MJ Packaging Partnership, we will no longer purchase additional packaging inventory and MJ Pack will become our strategic partner to continue providing and enhancing packaging solutions for our customers. As a result of the MJ Packaging Partnership, we are no longer seeking a purchaser for our packaging division. Second, we entered into a strategic partnership with an affiliate of one of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-structure and enhance our margins and convert millions of dollars of existing inventory back into cash, thereby improving our balance sheet. On May 6, 2024, the Company, Warehouse Goods and Synergy Imports LLC (“Synergy”) entered into an asset purchase agreement, dated May 1, 2024 (the “Asset Purchase Agreement”) pursuant to which Synergy purchased all of the intellectual property, a specified amount of inventory, and other assets related to the Eyce and DaVinci brands. In consideration for the acquisition, all parties entered into a loan modification agreement, effective May 1, 2024 (the “Loan Modification Agreement”) and an amended and restated secured promissory note, effective May 1, 2024 (the Amended and Restated Secured Promissory Note”), an amendment to the original Eyce and Davinci Asset Purchase Agreements, a distribution agreement, the termination of a license granted by Eyce, and the termination of certain consulting and employment agreements. USPS PACT Act Exemption On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and had their supply chains disrupted by PACT Act compliance. On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls, processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers. Reverse Stock Split On June 2, 2023, we filed a Certificate of Amendment to the A&R Charter with the SSSD, which effected a one-for-10 reverse stock split (the “2023 Reverse Stock Split” and together with the 2022 Reverse Stock Split, the “Reverse Stock Splits”) of our issued and outstanding shares of Common Stock at 5:01 PM Eastern Time on June 5, 2023. As a result of the 2023 Reverse Stock Split, every 10 shares of common stock issued and outstanding were converted into one share of common stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the 2023 Reverse Stock Split. The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Split, as required by the terms of each security. The number of shares available to be awarded under our Second Amended and Restated 2019 Equity Incentive Plan have also been appropriately adjusted. See “Note 10 — Compensation Plans” for more information. 47 All share and per share amounts in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split. Critical Accounting Estimates We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience, outside advice from parties believed to be experts in such matters, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. See “Note 2—Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for a description the significant accounting policies and methods used in the preparation of our consolidated financial statements. Inventories Inventories, consisting of finished products, are primarily accounted for using the weighted-average method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers or liquidations. Assumptions about the future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. Income Taxes and TRA Liability We are a corporation subject to income taxes in the United States. Certain subsidiaries of the Operating Company are taxable separately from us. Our proportional share of the Operating Company’s subsidiaries’ provisions are included in our consolidated financial statements. As of December 31, 2022, we held all the outstanding Common Units in the Operating Company and are the sole member. As a result, in 2023, 100% of the Operating Company’s US and state income and expenses are now included in our US and state tax returns. Our deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future. We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine we would be able to realize our deferred tax assets for which a valuation allowance had been recorded, then we would adjust the deferred tax asset valuation allowance, which would reduce our provision for income taxes. We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit. We have no uncertain tax positions that qualify for inclusion in our consolidated financial statements. 48 In addition to tax expenses, we may incur expenses related to our operations and may be required to make payments under the Tax Receivable Agreement (the “TRA”), which could be significant. Pursuant to the Greenlane Operating Agreement, Greenlane Holdings, LLC will generally make pro rata tax distributions to its members in an amount sufficient to fund all or part of their tax obligations with respect to the taxable income of Greenlane Holdings, LLC that is allocated to them and possibly in excess of such amount. Legal Contingencies In the ordinary course of business, we are involved in legal proceedings involving a variety of matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We evaluate the associated developments on a regular basis and accrue a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can be estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements to the extent material. We review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related reasonably possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability of loss and the estimated amount of loss. The outcome of these matters is inherently uncertain. Therefore, if one or more legal proceedings were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. See “Note 7—Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional information regarding these contingencies. Recent Accounting Pronouncements See “Note 2—Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. 49 Results of Operations The following table presents operating results for the years ended December 31, 2023 and 2022: For the Year Ended December 31, (in thousands) % of Net sales Change 2023 2022 2023 2022 $ % Net sales $ 65,373 $ 137,085 100.0 % 100.0 % (71.6 ) (52.3 )% Cost of sales 47,547 112,102 72.7 % 81.8 % (64.6 ) (57.6 )% Gross profit 17,826 24,983 27.3 % 22.3 % (7.2 ) (28.6 )% Operating expenses: Salaries, benefits and payroll taxes 17,454 31,290 26.7 % 22.8 % (13.8 ) (44.2 )% General and administrative 24,213 41,000 37.0 % 29.9 % (16.8 ) (40.9 )% Goodwill and indefinite-lived intangibles impairment charge — 71,360 — % 52.1 % (71.4 ) (100.0 )% Definite-lived intangibles impairment charge — 50,694 — % 37.0 % (50.7 ) (100.0 )% PP&E impairment charge — 7,336 — % 5.4 % (7.3 ) (100.0 )% Depreciation and amortization 2,243 7,405 3.4 % 5.4 % (5.2 ) (69.7 )% Total operating expenses 43,910 209,085 67.2 % 152.5 % (165.2 ) (79.0 )% Loss from operations (26,084 ) (184,102 ) (39.9 )% (134.3 )% 158.0 (85.8 )% Other income(expense), net: Interest expense (5,450 ) (2,450 ) (8.3 )% (1.8 )% (3.0 ) 122.4 % Employee retention credits — 4,854 — % 3.5 % (4.9 ) (100.0 )% Other expense, net (791 ) (541 ) (1.2 )% (0.4 )% 0.3 (46.3 )% Total other (expense) income, net (6,241 ) 1,863 (9.5 )% 1.4 % (8.1 ) (435.0 )% Loss before income taxes (32,325 ) (182,239 ) (49.4 )% (132.9 )% 149.9 (82.3 )% (Benefit from) provision for income taxes — (13 ) — % — % — (100.0 )% Net loss (32,325 ) (182,226 ) (49.4 )% (132.9 )% 149.9 (81.8 )% Net (loss) income attributable to non-control interest (150 ) (12,717 ) (0.2 )% (9.3 )% 12.6 (98.8 )% Net loss attributable to Greenlane Holdings, Inc. $ (32,175 ) $ (169,509 ) (49.2 )% (123.7 )% 137.3 (81.0 )% Consolidated Results of Operations Net Sales For the year ended December 31, 2023, total net sales were approximately $65.4 million, compared to approximately $137.1 million for the year ended December 31, 2022, representing a decrease of $71.7 million, or 52.3%. The year-over-year decrease was a result of the Industrial segment transitioning to a commission revenue model versus gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business. The Consumer segment sales decreased due to declining business globally, reduction in sales staff and marketing spend and the company was out of stock for high demand inventory items due to capital restrictions to invest in inventory purchases. 50 Cost of Sales and Gross Margin For the year ended December 31, 2023, cost of sales decreased by $64.6 million, or 57.6%, as compared to the year ended December 31, 2022. The decrease in cost of sales is aligned with the decrease in revenue of 52.3%. Gross margin increased by 5% to 27.3% for the year ended December 31, 2023, compared to gross margin of 22.3% for the same period in 2022. The increase in gross margins is related to transitioning to a commission revenue model for the majority of the vaporizer sales with 100% margin versus gross revenue with lower margins. Also contributing to the increase in margin is the Company’s continued focus on consumer in-house brands with higher margins and moving away from third-party brands with lower margins. Salaries, Benefits and Payroll Taxes Salaries, benefits and payroll taxes expenses decreased by approximately $13.8 million, or 44.2% , to $17.4 million for the year ended December 31, 2023, compared to $31.3 million for the same period in 2022. The decrease is related to a major restructuring effort by the company to reduce headcount and cost to align with revenue. General and Administrative Expenses General and administrative expenses decreased by approximately $16.8 million, or 40.9 %, for the year ended December 31, 2023 , compared to the same period in 2022 . The decrease is related to a major reduction in expenses across to align with revenue Goodwill and Indefinite-Lived Intangibles Impairment Charge We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $71.4 million and a definite-lived intangibles impairment charge of approximately $50.7 million during the twelve months ended December 31, 2022, compared to no such impairment charge for the comparable period in 2023. We incurred a impairment charge of approximately $7.3 million to fixed assets related to the ERP system during the year ended December 31, 2022, compared to no such impairment charge fore the comparable year in 2023. This impairment charges were due to declining business and declining enterprise value. Depreciation and Amortization Expense Depreciation and amortization expense decreased $5.2 million , or 69.7% , for the year ended December 31, 2023 , compared to the same period in 2022 . The decrease is primarily related to the intangible and fixed asset impairments recorded as of December 31, 2023, reducing amortization expense. Other Income (Expense), Net Interest expense. Interest expense increased approximately $3.0 million during the fiscal year 2023 versus fiscal year 2022. The increase is primarily related to the exiting ABL facility which accelerated deferred interest expense as well as the promissory notes for the Eyce and DaVinci acquisition. Other expense, net. Other expense, net, increased by approximately $0.3 million for the year ended December 31, 2023 , for slight changes to non-recurring costs during the year ended December 31, 2023. Segment Operating Performance Following the completion of the KushCo merger in late August 2021, we reassessed our operating segments based on our new organizational structure. Based on this assessment, we determined we had two operating segments as of December 31, 2021, which are the same as our reportable segments: (1) Consumer Goods, which largely comprises Greenlane’s legacy operations across the United States, Canada, and Europe, and (2) Industrial Goods, which largely comprises KushCo’s legacy operations. These changes in operating segments align with how we manage our business as of the fourth quarter of 2023. The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary brands, including Eyce, DaVinci, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like Storz and Bickel, Grenco Science, and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands. 51 The Industrial Goods segment focuses on serving the premier cannabis brands, operators, and retailers through our wholesale operations by providing ancillary products essential to their growth, such as customizable packaging and supply products, which includes our Greenlane Brand Pollen Gear and vaporization solutions offering which includes CCELL branded products. Our “Chief Operations Decision Marker (“CODM”) allocates resources to and assesses the performance of our two operating segments based on the operating segments’ net sales and gross profit. The following table sets forth information by reportable segment for the years ended December 31, 2023 and 2022: % of Total Net sales Change 2023 2022 2023 2022 $ % Net sales: Consumer Goods $ 28,737 $ 48,134 43.9 % 35.1 % $ (19,397 ) (40.3 )% Industrial Goods 36,636 88,951 56.0 % 64.9 % (52,315 ) (58.8 )% Total net sales $ 65,373 $ 137,085 % of Segment Net sales Change Cost of sales: 2023 2022 2023 2022 $ % Consumer Goods $ 18,754 $ 38,531 65.3 % 80.0 % $ (19,777 ) (51.3 )% Industrial Goods 28,793 73,571 78.6 % 82.7 % (44,778 ) (60.9 )% Total cost of sales $ 47,547 $ 112,102 Gross profit: Consumer Goods $ 9,983 $ 9,603 34.7 % 20.0 % $ 380 13.2 % Industrial Goods 7,843 15,380 21.4 % 17.3 % (7,537 ) (20.6 )% Total gross profit $ 17,826 $ 24,983 Consumer Goods For the year ended December 31, 2023, our Consumer Goods operating segment reported net sales of approximately $28.7 million compared to approximately $48.1 million for the same period in 2022 , representing a decrease of $19.4 million or 40.3%. The 2023 decline in the Consumer Goods segment is due to a major restructuring effort by the Company during fiscal year 2023 to reduce sales and marketing cost to align with revenue, sale of the Company’s minority interest in Vibes brand and a shift in strategy to focus on in-house brands that have a higher margin profile and rationalized third-party brand offering generating top line revenue with lower margins. For the year ended December 31, 2023, cost of sales decreased by $19.8 million, or 51.3%, as compared to the same period in 2022 . The decrease in cost of sales was primarily due to the 40.3% decrease in Consumer Goods net sales. Gross margin increased to approximately 34.7% for the year ended December 31, 2023, compared to gross margin of approximately 20.0% for the same period in 2022, as the Company has shifted focus on margins versus overall topline revenues in an effort to move to a net positive operating cash flow. Industrial Goods For the year ended December 31, 2023, our Industrial Goods operating segment reported net sales of approximately $36.6 million compared to approximately $89.0 million for the same period in 2022 , representing an decrease of $52.3 million or (58.8%). The year-over-year decrease was a result of the Industrial segment transitioning to a commission revenue model versus gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business. For the year ended December 31, 2023, cost of sales decreased by $44.8 million, or 60.9%, as compared to the same period in 2022 . The decrease is consistent with our overall decrease in revenues. Gross margin was approximately 21.4% for the year ended December 31, 2023, compared to gross margin of approximately 17.3% for the same period in 2022 , representing 4.1% year over year increase. 52 Net Sales by Geographic Regions Year Ended December 31, % of Net sales Change 2023 2022 2023 2022 $ % Net sales: United States $ 58,539 $ 126,333 89.5 % 92.2 % $ (67,794 ) (53.7 )% Canada 1,291 5,810 1.9 % 4.2 % (4,519 ) (77.8 )% Europe 5,072 4,942 7.8 % 3.6 % 130 2.6 % Total net sales $ 65,373 $ 137,085 100.0 % 100.0 % $ (71,712 ) (52.3 )% For the year ended December 31, 2023, our United States net sales to customers in the United States were approximately $58.5 million, compared to approximately $126.3 million for the same period in 2022 , representing a decrease of $67.8 million, or 53.7%. The year-over-year decrease was primarily due to an overall business decline in the Industrial and Consumer Goods segments as described above. For the year ended December 31, 2023, our Canadian net sales were approximately $1.3 million, compared to approximately $5.8 million for the same period in 2022 , representing a decrease of $4.5 million, or 77.8%. The year-over-year decrease was primarily due to an overall business decline in the Industrial and Consumer Goods segments as described above. For the year ended December 31, 2023, our European net sales were approximately $5.1 million, compared to approximately $4.9 million for the same period in 2022 , representing an increase of $0.11 million, or 2.6%. Liquidity, Capital Resources and Going Concern Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds other equity issuances. As of December 31, 2023, we had approximately $0.5 million of cash, of which none was restricted and $0.1 million was held in foreign bank accounts, and approximately $3.7 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $6.5 million of cash, of which $0.8 million was held in foreign bank accounts, and approximately $41.0 million of working capital as of December 31, 2022. The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls; however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal or other restrictions. We believe that our cash on hand and the cash flow that we generate from our operations will not be sufficient to fund our working capital and capital expenditure requirements, as well as our debt repayments and other liquidity requirements associated with our existing operations, for the next 12 months. Based on our cash on hand and working capital at December 31, 2023, we may have insufficient cash to fund planned operations into the third quarter of 2024. This is evident from our continued efforts to raise capital and leverage external funding to fulfill our capital needs as highlighted below. Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds from equity issuances, such as our June 2022, October 2022 and July 2023 Offerings, each as described and defined below. ATM Program and Shelf Registration Statement We formerly used a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to conduct securities offerings. In August 2021, we filed a prospectus supplement and established an “at-the-market” equity offering program (the “ATM Program”) that provided for the sale of shares of our Class A common stock having an aggregate offering price of up to $50 million, from time to time. H Since the launch of the ATM program in August 2021 and through December 31, 2022, we sold shares of our Class A common stock which generated gross proceeds of approximately $12.7 million and we paid fees to the sales agent of approximately $0.4 million. Due to the untimely filing of certain of our Quarterly and Annual Reports, we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement. 53 Common Stock and Warrant Offerings On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 58,500 shares of our Class A common stock, pre-funded warrants to purchase up to 49,500 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 108,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”), in a registered direct offering (the “June 2022 Offering”). The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million. All June 2022 Pre-Funded Warrants were exercised in July 2022, for de minimis net proceeds. On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 695,555 shares of our Class A common stock, pre-funded warrants to purchase up to 137,778 shares of our Class A Common Stock (the “October 2022 Pre-Funded Warrants”) and warrants to purchase up to 1,666,667 shares of our Class A common stock (the “October 2022 Standard Warrants”). The October 2022 units were offered pursuant to a Registration Statement on Form S-1 (the “October 2022 Offering”). The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares of our Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A Common Stock (the “July 2023 Pre-Funded Warrants”) and warrants to purchase up to 8,095,238 shares of our Class A common stock (the “July 2023 Standard Warrants”). The July 2023 units were offered pursuant to a Registration Statement on Form S-1 (the “July 2023 Offering”). The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.8 million and closed on July 3, 2023. Asset-Based Loan On August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which made available to the Company a term loan of up to $15.0 million. On February 9, 2023, we entered into Amendment No. 2 to the Loan Agreement, in which we agreed to, among other things, voluntarily prepay approximately $6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Loan Agreement and the lenders under the Loan Agreement agreed to release $5.7 million in funds held in a blocked account pursuant to the terms of the Loan Agreement. On August 7, 2023, we repaid the approximately $4.3 million in aggregate principal amount (the “Loan Repayment”) which remained outstanding under the terms of the Loan Agreement. As a result of the Loan Repayment, the Company has been released from its obligations under the Loan Agreement, in accordance with the terms of the Loan Agreement. See “Note 6 - Long Term Debt” for more information. ERC Sale On February 16, 2023, two of our wholly owned subsidiaries, Warehouse Goods LLC and KIM International LLC, entered into an agreement with a third-party institutional investor pursuant to which the investor purchased, for approximately $4.85 million in cash, an economic participation interest, at a discount, in our rights to payment from the United States Internal Revenue Service for certain periods with respect to the employee retention credits filed by us under the Employee Retention Credit program. Future Receivables Financings In July, August, October , and November 2023, the Company received an aggregate of approximately $3.9 million in cash pursuant to the terms of future receivables financings (collectively, the “Future Receivables Financings”) entered into with two private lenders. See “Note 6 - Long Term Debt” for more information. 54 Management Initiatives We have completed several initiatives to optimize our working capital requirements. We launched Groove, a new, innovative Greenlane Brands product line, and we also rationalized our third-party brands product offering, which enables us to reduce inventory carrying costs and working capital requirements. In April 2023, we entered into two strategic. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a MarijuanaPackaging.com (“MJ Pack”), a provider of packaging solutions to the cannabis industry. Second, we entered into a strategic partnership with an affiliate of one of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-structure and enhance our margins, thereby improving our balance sheet. We have successfully renegotiated supplier partnership terms and are continuing to improve working capital arrangements with suppliers. We have made progress consolidating and streamlining our office, warehouse, and distribution operations footprint. We have reduced our workforce by approximately 49% throughout fiscal year 2023 to reduce costs and align with our revenue projections. We have incurred net losses of $32.3 million and $182.2 million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, cash used in operating activities was $ 1.8 million and cash used in operating activities for the year ended December 31, 2022 was $26.4 million. The recent macroeconomic environment has caused weaker demand than contemplated under our business plan, resulting in a reduction in projected revenue and cash flows for the twelve-month period included in the going concern evaluation. As a result of our losses and our projected cash needs, combined with our current liquidity level, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and profitability, which includes, without limitation: ■ Further reducing operating costs expense by taking additional restructuring actions to align cost with revenue to achieve profitability. ■ Increasing revenue by introducing new products and acquiring new customers. ■ Execute on strategic partnerships accretive to margins and operating cash ■ Seeking additional capital through the issuance of debt or equity securities. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2023 . Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all. As of December 31, 2023 , we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. 55 Cash Flows The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included in Part II, Item 8 of this Form 10-K: Year Ended December 31, (in thousands) 2023 2022 Net cash provided by (used in) operating activities $ (1,793 ) $ (26,426 ) Net cash provided by (used in) investing activities 30 12,025 Net cash (used in) provided by financing activities (10,140 ) 13,930 Net Cash Used in Operating Activities During 2023, net cash used in operating activities of approximately $1.8 million was a result of a net loss of $32.3 million offset by non-cash adjustments to net loss of $6.5 million, including a $24.0 million increase in cash provided by working capital primarily driven by decreases in our accrued expenses and accounts payable, and decreases in inventories offset by higher other current assets. During 2022, net cash used in operating activities of approximately $26.4 million was a result of a net loss of $182.2 million offset by non-cash adjustments to net loss of $140.6 million, including an impairment charge related to goodwill and indefinite-lived intangibles of $71.4 million, and a $15.2 million increase in cash provided by working capital primarily driven by decreases in our accrued expenses and accounts payable, and decreases in inventories offset by higher other current assets.. Net Cash Provided by Investing Activities During 2023, net cash provided by investing activities of (i) approximately $0.1 million from $1.1 million of cash proceeds from the sale of certain equity securities investments, offset by approximately $1.0 million of cash used for capital expenditures, including development costs for our new enterprise resource planning system. During 2022, net cash provided by investing activities of (i) approximately $12.0 million of cash proceeds from the sale of our assets held for sale, (ii) approximately $4.6 million of cash proceeds from the disposition of our interests in VIBES, and (iii) approximately $0.6 million of cash proceeds from the sale of certain equity securities investments, offset by approximately $2.8 million of cash used for capital expenditures, including development costs for our new enterprise resource planning system. Net Cash (Used in) Provided by Financing Activities During 2023, net cash used in financing activities primarily consisted of (i) approximately $3.9 million of cash proceeds from the issuance of Class A common stock related to our July 2023 Offering, (ii) approximately $3.9 million of cash proceeds from our future receivables financing, (iii) $2.1 million of cash proceeds from a secured bridge loan, offset by (iv) approximately $0.3 million of cash used for contingent consideration payments, (v) and approximately $2.1 million of cash used for repayments related to the Eyce and DaVinci promissory notes, and (vi) the $15.0 million payoff of asset based lending loans. During 2022, net cash provided by financing activities primarily consisted of (i) approximately $21.1 million of cash proceeds from the issuance of Class A common stock related to our ATM Program, the June 2022 Offering and the October 2022 Offering, (2) approximately $14.6 million of cash proceeds from our Asset-Based Loan, offset by debt issuance costs of $1.5 million, and (iii) approximately $0.9 million of cash used for contingent consideration payments, (iv) and approximately $19.4 million of cash used for repayments related to the Eyce and DaVinci promissory notes, the payoff of the Real Estate Note, and repayment of our bridge loan. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required. 56