What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 313 added, 537 removed, 401 unchanged (68% of the section changed)

3 unchanged sentences

(in thousands, except par value per share amounts)

September 30,

2022 December 31,

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Cash $ 5,944 $ 12,857

Accounts receivable, net of allowance of $ 982 and $ 1,084 at September 30, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowance of $ 1,409 and $ 1,285 at March 31, 2022 and December 31, 2021, respectively

19,903 14,690

Inventories, net 68,526 66,982

Vendor deposits 12,485 18,475

Assets held for sale 75 1,073

Other current assets (Note 8) 11,959 11,733

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Customer deposits 6,838 7,924

Current portion of notes payable, including $ 8,000 owed to related party

11,602 11,615

Current portion of operating leases 2,828 3,091

Current portion of finance leases 180 184

Total current liabilities 77,074 70,968

1 unchanged sentence

Operating leases, less current portion 4,346 6,142

Finance leases, less current portion 191 205

Other liabilities 821 1,746

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Preferred stock, $ 0.0001 par value, 10,000 shares authorized, none issued and outstanding

Class A common stock, $ 0.01 par value per share, 600,000 shares authorized as of September 30, 2021 and 125,000 shares authorized as of December 31, 2020;

79,807 shares issued and outstanding as of September 30, 2021;

Class A common stock, $ 0.01 par value per share, 600,000 shares authorized;

102,600 shares issued and outstanding as of March 31, 2022;

85,210 shares issued and outstanding as of December 31, 2021

Class B common stock, $ 0.0001 par value per share, 30,000 shares authorized as of September 30, 2021 and 10,000 shares authorized as of December 31, 2020;

21,850 and 3,491 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Class C common stock, $ 0.0001 par value per share, 0 shares authorized as of September 30, 2021 and 100,000 shares authorized as of December 31, 2021;

0 and 76,039 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Class B common stock, $ 0.0001 par value per share, 30,000 shares authorized;

21,185 shares issued and outstanding as of March 31, 2022;

21,745 shares issued and outstanding as of December 31, 2021

Class C Common stock, $ 0.0001 par value per share, no shares authorized, issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital 240,280 228,894

Accumulated deficit ( 70,876 ) ( 55,544 )

Accumulated other comprehensive income 92 29

Accumulated other comprehensive income (loss) 685 324

Total stockholders’ equity attributable to Greenlane Holdings, Inc.

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Total liabilities and stockholders’ equity $ 281,124 $ 285,827

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

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(in thousands, except per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Three months ended March 31,

Net sales $ 46,534 $ 34,009

4 unchanged sentences

General and administrative 11,715 9,581

Goodwill impairment charge — — — 8,996

Depreciation and amortization 2,403 544

1 unchanged sentence

Loss from operations ( 18,211 ) ( 7,940 )

Other (expense) income, net:

Other income (expense), net:

Interest expense ( 406 ) ( 116 )

Other (expense) income, net ( 894 ) 357 ( 690 ) 1,483

Total other (expense) income, net ( 1,013 ) 242 ( 1,058 ) 1,148

Other income (expense), net ( 54 ) 324

Total other income (expense), net ( 460 ) 208

Loss before income taxes ( 18,671 ) ( 7,732 )

1 unchanged sentence

Net loss ( 18,749 ) ( 7,714 )

Net loss attributable to non-controlling interest

Net loss attributable to non-controlling

( 3,417 ) ( 3,458 )

31 unchanged sentences

Equity-based compensation 1,870 19 — — — — 711 — — 172 902

Other comprehensive income — — — — — — — — 18 31 49

Issuance of Class A common stock for Eyce acquisition 426 4 — — — — 2,001 — — — 2,005

Exchanges of noncontrolling interest for Class A common stock 2,368 24 ( 1,043 ) — ( 3,975 ) ( 1 ) 5,774 — — ( 5,797 ) —

Cancellation of Class B common stock due to forfeitures — — ( 5 ) — — — 8 — — ( 8 ) —

Balance, March 31, 2021 16,342 163 2,443 1 72,064 7 47,705 ( 29,104 ) 47 45,284 64,103

Net loss — — — — — — — ( 3,043 ) — ( 2,797 ) ( 5,840 )

Equity-based compensation ( 26 ) — — — — — 161 — — 246 407

Issuance of Class A shares, net of costs - ATM Program 11,135 111 — — — — 6,690 — — — 6,801

Issuance of Class A shares - contingent consideration 3,826 38 — — — — 3,448 — — — 3,486

Exchanges of noncontrolling interest for Class A common stock 560 6 ( 560 ) — — — 537 — — ( 543 ) —

Exercise of Class A common stock options 32 — — — — — 112 — — — 112

Member distributions — — — — — — — ( 200 ) — — ( 200 )

Other comprehensive income — — — — — — — — 361 85 446

Balance, June 30, 2021 16,943 169 2,436 1 70,301 7 48,955 ( 32,347 ) 143 41,897 58,825

Net loss — — — — — — — ( 16,281 ) — ( 12,434 ) ( 28,715 )

Equity-based compensation ( 10 ) — — — — — 2,036 — — 1,772 3,808

Exchanges of noncontrolling interest for Class A common stock 4,019 40 ( 4,020 ) ( 1 ) — — 5,331 — — ( 5,370 ) —

Exercise of Class A common stock options and warrants 5,974 60 — — — — 96 — — — 156

Conversion of Class C common stock — — 23,434 2 ( 70,301 ) ( 7 ) 5 — — — —

Issuance of Class A common stock, net of costs 52,871 529 — — — — 165,684 — — — 166,213

Other comprehensive loss — — — — — — — — ( 51 ) ( 44 ) ( 95 )

Balance, September 30, 2021 79,797 $ 798 21,850 $ 2 — $ — $ 222,107 $ ( 48,628 ) $ 92 $ 25,821 $ 200,192

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Balance March 31, 2022 102,601 $ 1,026 21,185 $ 2 — $ — $ 240,280 $ ( 70,876 ) $ 685 $ 18,133 $ 189,250

Common Stock Class B

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Comprehensive

Income (Loss) Non-

Interest Total

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Equity-based compensation 226 2 — — — — 180 — — 324 506

Other comprehensive loss — — — — — — — — ( 267 ) ( 853 ) ( 1,120 )

Other comprehensive income — — — — — — — — 18 31 49

Issuance of Class A common stock 426 4 — — — — 2,001 — — — 2,005

Exchanges of noncontrolling interest for Class A common stock 2,368 24 ( 1,043 ) — ( 3,975 ) ( 1 ) 5,774 — — ( 5,797 ) —

Cancellation of Class B common stock due to forfeitures — — ( 5 ) — — — 8 — — ( 8 ) —

Joint venture consolidation — — — — — — — — — 189 189

Balance March 31, 2021 16,342 $ 163 2,443 $ 1 72,064 $ 7 $ 47,705 $ ( 29,104 ) $ 47 $ 45,284 $ 64,103

Net loss — — — — — — — ( 2,051 ) — ( 4,261 ) ( 6,312 )

Equity-based compensation — — — — — — 220 — — 672 892

Issuance of Class A common stock for the acquisition of Conscious Wholesale 171 2 — — — — 485 — — — 487

Cancellation of Class B common stock due to equity-based compensation award forfeitures — — ( 6 ) — — — 9 — — ( 9 ) —

Exchange of noncontrolling interest for Class A common stock 2,140 21 ( 2,140 ) — — — 3,896 — — ( 3,917 ) —

Other comprehensive income — — — — — — — — 99 306 405

Balance, June 30, 2020 12,603 126 3,724 1 77,791 8 38,501 ( 16,239 ) ( 240 ) 71,680 93,837

Net loss — — — — — — — ( 4,493 ) — ( 9,300 ) ( 13,793 )

Equity-based compensation — — — — — — ( 298 ) — — ( 682 ) ( 980 )

Issuance of Class A common stock 35 1 — — — — 75 — — — 76

Cancellation of Class B Common Stock related to equity-based compensation award forfeitures — — ( 133 ) — — — 221 — — ( 221 ) —

Redemption of Common Units for Class A common stock 434 4 — — ( 1,302 ) — 695 — — ( 699 ) —

Other comprehensive income — — — — — — — — 86 234 320

Balance, September 30, 2020 13,072 $ 131 3,591 $ 1 76,489 $ 8 $ 39,194 $ ( 20,732 ) $ ( 154 ) $ 61,012 $ 79,460

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three months ended March 31,

Cash flows from operating activities:

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Equity-based compensation expense 874 529

Goodwill impairment charge — 8,996

Change in fair value of contingent consideration 755 ( 719 )

Change in provision for doubtful accounts 227 101

Gain (loss) related to indemnification asset ( 1,692 ) 2,200

Loss on disposal of assets 206 569

Gain related to indemnification asset ( 1,798 ) ( 621 )

Unrealized loss on equity investments 302 —

Other ( 183 ) 5

Changes in operating assets and liabilities, net of the effect of acquisitions:

(Increase) decrease in accounts receivable ( 2,092 ) 886

Decrease in inventories 9,723 6,140

(Increase) decrease in vendor deposits ( 661 ) 2,543

Changes in operating assets and liabilities, net of the effects of acquisitions:

Decrease (increase) in accounts receivable ( 5,440 ) 713

Decrease (increase) in inventories ( 1,545 ) 1,462

Decrease (increase) in vendor deposits 5,990 433

Decrease (increase) in other current assets ( 3,624 ) 1,147

(Decrease) increase in accounts payable 5,859 ( 10,450 )

(Decrease) increase in accrued expenses ( 5,957 ) 9,558

(Decrease) in customer deposits ( 145 ) ( 670 )

(Decrease) Increase in accrued expenses and other liabilities 4,748 ( 1,943 )

(Decrease) increase in customer deposits ( 1,087 ) 537

Net cash used in operating activities ( 12,023 ) ( 15,257 )

1 unchanged sentence

Purchase consideration paid for acquisitions, net of cash acquired — ( 2,403 )

Purchase of property and equipment, net ( 2,327 ) ( 1,438 )

Purchases of property and equipment, net ( 784 ) ( 419 )

Proceeds from sale of assets held for sale 75 —

Purchase of intangible assets ( 320 ) ( 300 )

Net cash used in investing activities ( 709 ) ( 2,822 )

Cash flows from financing activities:

Member distributions ( 200 ) —

Proceeds from issuance of Class A common stock, net of costs 29,539 —

Proceeds from exercise of stock options and warrants 268 —

Repayments of notes payable ( 414 ) ( 145 )

Proceeds from issuance of Class A common stock, net of costs - ATM Program 6,801 —

Payments on notes payable ( 992 ) ( 47 )

Other ( 135 ) ( 57 )

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Cash paid for amounts included in the measurement of lease liabilities $ 802 $ 373

Operating cash flows for operating leases $ 1,093 $ 1,193

Lease liabilities arising from obtaining finance lease assets $ — $ 119

1 unchanged sentence

Non-cash investing and financing activities:

Issuance of Class A common stock for business acquisitions $ 3,486 $ 1,218

Non-cash purchases of property and equipment $ 1,663 $ 287

Issuance of Class A common stock for acquisitions $ 125,496 $ 1,988

Issuance of warrants and stock options for acquisition $ 13,182 $ —

Issuance of promissory note for acquisition $ 2,503 $ —

Issuance of contingent consideration for acquisition $ 1,828 $ —

Issuance of promissory note for business acquisition $ — $ 2,503

Decrease in non-controlling interest as a result of exchanges for Class A common stock $ ( 543 ) $ ( 5,797 )

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(“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 , $ 0.01 par value per share (the “Class A common stock”), in order to carry on the business of Greenlane Holdings, LLC (the “Operating Company”).

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, $ 0.01 par value per share (“Class A common stock”), 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.

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We have a board of directors and executive officers, but no employees.

All of our assets are held and all of the employees are employed by the Operating Company.

All of our assets are held and all of the employees are employed by the Operating Company and its subsidiaries.

We have the sole voting interest in, and control the management of, the Operating Company, and we have the obligation to absorb losses of, and receive benefits from, the Operating Company, that could be significant.

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On August 31, 2021, we completed our previously announced merger with KushCo Holdings, Inc.

("KushCo") and have included the results of operations of KushCo in our condensed consolidated statements of operations and comprehensive loss from that date forward.

As such, the KushCo financial information included in our condensed consolidated financial statements for the three and nine months ended September 30, 2021 is for the period commencing on August 31, 2021 (the date of the closing of the merger) through September 30, 2021.

("KushCo") and have included the results of operations of KushCo in our consolidated statements of operations and comprehensive loss from that date forward.

As such, KushCo financial information is included in our condensed consolidated financial statements for the three months ended March 31, 2022, and is excluded from the comparative period in 2021.

Immediately following the merger with KushCo, stockholders that held Class A common stock prior to the completion of the merger owned 51.9 % and former KushCo stockholders owned 48.1 % of the equity of the combined company on a fully diluted basis.

In connection with the merger with KushCo, the Greenlane Certificate of Incorporation was amended and restated (the “A&R Charter”) in order to (i) increase the number of authorized shares of Greenlane Class B common stock, $ 0.0001 par value per share (the “Class B Common stock”), from 10,000,000 shares to 30,000,000 shares in order to effect the conversion of each outstanding share of Class C common stock, $ 0.0001 par value per share (the “Class C common stock”), into one-third of one share of Class B common stock, (ii) increase the number of authorized shares of Class A common stock from 125,000,000 shares to 600,000,000 shares, and (iii) eliminate references to the Class C common stock.

In connection with the merger with KushCo, the Greenlane Certificate of Incorporation was amended and restated (the “A&R Charter”) in order to (i) increase the number of authorized shares of Greenlane Class B common stock, $ 0.0001 par value per share (the “Class B Common stock”), from 10 million shares to 30 million shares in order to effect the conversion of each outstanding share of Class C common stock, $ 0.0001 par value per share (the “Class C common stock”), into one-third of one share of Class B common stock, (ii) increase the number of authorized shares of Class A common stock from 125 million shares to 600 million shares, and (iii) eliminate references to the Class C common stock.

Pursuant to the terms of an Agreement and Plan of Merger, dated as of March 31, 2021 (the "Merger Agreement") with KushCo, immediately prior to the consummation of the business combination, holders of Class C common stock received one-third of one share of Class B common stock for each share of Class C common stock held immediately prior to the closing of the merger.

For further information about the merger with KushCo, see "Note 3 - Business Acquisitions."

We merchandise premium cannabis accessories, child-resistant packaging, specialty vaporization solutions and lifestyle products in the United States, Canada and Europe, serving a diverse and expansive customer base with more than 8,500 retail locations, including licensed cannabis dispensaries, smoke shops, and specialty retailers.

We distribute to multi-state operators ("MSOs"), licensed producers ("LPs"), other retailers and brands through wholesale operations under our Industrial Goods division, and to consumers through both wholesale operations as well as e-commerce activities and our retail stores under our Consumer Goods division.

We distribute to multi-state operators ("MSOs"), licensed producers ("LPs"), other retailers and brands through wholesale operations under our Industrial Goods business segment, and to consumers through both wholesale operations as well as e-commerce activities and our retail stores under our Consumer Goods business segment.

Our corporate structure is commonly referred to as an “Up-C” structure.

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Additionally, because the members may redeem their Common Units for shares of Class A common stock on a one -for-one basis or, at our option, for cash, the Up-C structure also provides the members with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.

In connection with our initial public offering, we entered into a Tax Receivable Agreement (the “TRA”) with the Operating Company and the Operating Company’s members and a Registration Rights (the “Registration Rights Agreement”) with the Operating Company’s members.The TRA provides for the payment by us to the Operating Company’s members of 85.0 % of the amount of tax benefits, if any, that we may actually realize (or in some cases, are deemed to realize) as a result of (i) the

step-up in tax basis in our share of the Operating Company's assets resulting from the redemption of Common Units under the mechanism described above and (ii) certain other tax benefits attributable to payments made under the TRA.

In connection with our initial public offering, we entered into a Tax Receivable Agreement (the “TRA”) with the Operating Company and the Operating Company’s members (other than Greenlane Holdings, Inc.) and a Registration Rights (the “Registration Rights Agreement”) with the Operating Company’s members.

The TRA provides for the payment by us to the Operating Company’s members of 85.0 % of the amount of tax benefits, if any, that we may actually realize (or in some cases,

are deemed to realize) as a result of (i) the step-up in tax basis in our share of the Operating Company's assets resulting from the redemption of Common Units under the mechanism described above and (ii) certain other tax benefits attributable to payments made under the TRA.

Pursuant to the Registration Rights Agreement, we have agreed to register the resale of shares of Class A common stock that are issuable to the Operating Company’s members upon redemption or exchange of their Common Units.

The A&R Charter and the Third Amended and Restated Operating Agreement of the Operating Company (the “Operating Agreement”) require that (a) we at all times maintain a ratio of one Common Unit owned by us for each share of our Class A common stock issued by us (subject to certain exceptions), and (b) the Operating Company at all times maintains (i) a one -to-one ratio between the number of shares of our Class A common stock issued by us and the number of Common Units owned by us, and (ii) a one -to-one ratio between the number of shares of our Class B common stock owned by the non-founder members of the Operating Company and the number of Common Units owned by the non-founder members of the Operating Company.

The following table sets forth the economic and voting interests of our common stock holders as of September 30, 2021:

The A&R Charter and the Fourth Amended and Restated Operating Agreement of the Operating Company (the “Operating Agreement”) require that (a) we at all times maintain a ratio of one Common Unit owned by us for each share of our Class A common stock issued by us (subject to certain exceptions), and (b) the Operating Company at all times maintains (i) a one -to-one ratio between the number of shares of our Class A common stock issued by us and the number of Common Units owned by us, and (ii) a one -to-one ratio between the number of shares of our Class B common stock owned by the non-founder members of the Operating Company and the number of Common Units owned by the non-founder members of the Operating Company.

The following table sets forth the economic and voting interests of our common stock holders as of March 31, 2022:

Class of Common Stock (ownership) Total Shares (1)

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Total 123,784,447 123,784,447 100.0 % 100.0 % 100.0 %

(1) Represents the total number of outstanding shares for each class of common stock as of September 30, 2021.

(1) Represents the total number of outstanding shares for each class of common stock as of March 31, 2022.

(2) Represents the number of shares of Class A common stock that would be outstanding assuming the exchange of all outstanding shares of Class B common stock upon redemption of all related Common Units.

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As such, the information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date.

The condensed consolidated results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or any other future annual or interim period.

The condensed consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other future annual or interim period.

Certain reclassifications have been made to prior year amounts or balances to conform to the presentation adopted in the current year.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts, the accounts of the Operating Company, and the accounts of the Operating Company's consolidated subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

Our principal sources of liquidity at March 31, 2022 consisted of cash on hand, future cash anticipated to be generated from operations, and our ATM Program described below.

We have an effective shelf registration statement on Form S-3 (the "Shelf Registration Statement") and may opportunistically conduct securities offerings from time to time in order to meet our liquidity needs.

However, we may be unable to access the capital markets because of current market volatility and the performance of our stock price.

In August 2021, we established an "at-the-market" equity offering program (the "ATM Program") that provides 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, through Cowen and Company, LLC ("Cowen"), as the sales agent.

Net proceeds from sales of our shares of Class A common stock under the ATM Program are expected to be used for working capital and general corporate purposes.

Since the launch of the ATM program in August 2021 and through March 31, 2022, we sold 13,535,970 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $ 10.4 million and paid fees to the sales agent of approximately $ 0.3 million.

In connection with the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) with the SEC on March 31, 2022, the ATM Program became subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 ("Instruction I.B.6") because our public float was less than $75 million.

The ATM Program was subsequently amended on April 18, 2022 to reflect the Instruction I.B.6 limitations.

For so long as our public float is less than $75 million, the aggregate market value of the shares of Class A common stock sold by us pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float.

In December 2021, we entered into the Bridge Loan with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of the Company, in which Mr.

LoCascio provided us with a loan in the principal amount of $ 8.0 million.

Accrued interest at a rate of 15.0 % is due monthly, and principal amount is due in full in June 2022.

The Bridge Loan is secured by a continuing security interest in all of our assets and properties whether then or thereafter existing or required, including our inventory and receivables (as defined under the Universal Commercial Code) and includes negative covenants restricting our ability to incur further indebtedness and engage in certain asset dispositions until the earlier of June 30, 2022 or the Bridge Loan has been fully repaid.

We are in the process of securing an asset backed loan to assist us with working capital needs.

However, we can provide no assurances as to the timing of our entry into this loan or that we will enter into it at all.

We believe that our cash on hand, combined with our ability to access the capital markets, will 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 at least the next 12 months.

Use of Estimates

Conformity with U.S.

GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes.

GAAP requires the use of estimates and judgments that affect the reported amounts in our condensed consolidated financial statements and accompanying notes.

These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources.

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the fair value of contingent consideration arrangements;

the useful lives of intangibles assets

and property and equipment;

the calculation of our VAT receivable and VAT payable, including fines and penalties payable;

the useful lives of intangible assets and property and equipment;

the calculation of our VAT taxes receivable and VAT taxes, fines, and penalties payable;

our loss contingencies, including our TRA liability;

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Actual results could differ materially from those estimates.

Update on COVID-19

On March 11, 2020, the World Health Organization recognized the novel coronavirus ("COVID-19") as a global pandemic, prompting many national, regional, and local governments, including those in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, temporary store closures, and wide-sweeping quarantines and stay-at-home orders.

As a result, COVID-19 significantly curtailed global economic activity, including in the industries in which we operate.

While the U.S.

has recently seen a decline in new cases and states are loosening their shutdown and social distancing protocols, resulting in a wide reopening of adult recreational use and medical stores as well as other retail stores that the Company sells to, our sources of revenue continue to be affected by COVID-19, especially with the rise of new variants.

We continue to be impacted by business and supply chain disruptions resulting from the COVID-19 pandemic.

In particular, the pandemic has resulted in increased air freight costs incurred by us, as well as general difficulties in securing space on incoming freight from international vendors in order to make room for essential items.

We continue to experience unexpected and uncontrollable delays with our international supply shipments due to a significant increase in shipments to U.S.

ports, less cargo being shipped by air, and a general shortage of containers.

We, along with many other importers of goods across all industries, continue to experience severe congestion and extensive wait times for carriers at ports across the United States.

While we have been working diligently with our network of freight partners and suppliers to expedite delivery dates and provide solutions to reduce further impact and delays, we are unable to determine the full impact of these delays as they are outside our control.

Additionally, the Occupational Safety and Health Administration introduced a rule requiring certain employers to mandate vaccinations or conduct weekly COVID-19 test on unvaccinated employees.

These requirements could result in employee attrition if employees choose not to provide proof of vaccination or submit to COVID-19 testing.

Overall, while we are continuing to navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of its impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, the potential uncertainty related to and proliferation of new strains, and related actions taken by the U.S., international and state and local governments to prevent the spread of disease, all of which are uncertain, outside our control, and cannot be predicted at this time.

We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic.

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") a global pandemic.

We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic, including the possible resurgence of new strains.

Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our condensed consolidated financial statements.

Goodwill represents the excess of the price we paid over the fair value of the net identifiable assets we acquired in business combinations.

In accordance with ASC Topic 350, Intangibles—Goodwill and Other , we review goodwill for impairment at the reporting unit level annually or, when events or circumstances dictate, more frequently.

The impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, and if necessary, a quantitative goodwill impairment test.

Factors to consider when performing the qualitative assessment include general economic conditions, limitations on accessing capital, changes in forecasted operating results and fluctuations in foreign exchange rates.

If the qualitative assessment demonstrates that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value, it is not necessary to measure and record impairment loss.

We may elect to bypass the qualitative assessment and proceed directly to the quantitative assessment, for any reporting unit, in any period.

We can resume the qualitative assessment for any reporting unit in any subsequent period.

When we perform a quantitative impairment test, we use a combination of an income approach, a discounted cash flow valuation approach, and a market approach, using the guideline public company method, to determine the fair value of each reporting unit, and then compare the fair value to its carrying amount to determine the amount of impairment, if any.

If a reporting unit's fair value is less than its carrying amount, we record an impairment charge based on that difference, up to the amount of goodwill allocated to that reporting unit.

The quantitative impairment test requires the application of a number of significant assumptions, including estimated projections of future revenue growth rates, EBITDA margins, terminal value growth rates, market multiples, discount rates, and foreign currency exchange rates.

The projections of future cash flows used to assess the fair value of the reporting units are based on the internal operation plans reviewed by management.

The market multiples are based on comparable public company

The discount rates are based on the risk-free rate of interest and estimated risk premiums for the reporting units at the time the impairment analysis is prepared.

The projections of future exchange rates are based on the current exchange rates at the time the projections are prepared.

if the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required.

If the fair value of the reporting unit is less than the carrying value of its net assets, the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities, including both recognized and unrecognized tangible and intangible assets, based on their fair value.

If necessary, goodwill is then written down to its implied fair value.

Due to market conditions and estimated adverse impacts from the COVID-19 pandemic, management concluded that a triggering event occurred in the first quarter of 2020, requiring a quantitative impairment test of our goodwill for our United States and Europe reporting units.

Based on this assessment, we concluded that the estimated fair value of our United States reporting unit was determined to be below its carrying value, which resulted in a $ 9.0 million goodwill impairment charge for the three months ended March 31, 2020.

This impairment charge resulted from the impacts of COVID-19 on our current and forecasted wholesale revenues and the restrictions on certain products we sell imposed by the Federal Drug Administration ("FDA") Enforcement Priorities for Electronic Nicotine Delivery Systems ("ENDS") and Other Deemed Products on the Market Without Premarket Authorization ("ENDS Enforcement Guidance'), which resulted in changes to our estimates and assumptions of the expected future cash flows of the United States reporting unit.

We recognized no goodwill impairment charges during the three and nine months ended September 30, 2021.

See "Note 3—Business Acquisitions" for discussion of goodwill recognized during 2021 related to the Eyce LLC acquisition and KushCo merger.

The assignment of goodwill recognized from the KushCo merger to reporting units has not yet been completed as of the date of these financial statements.

We expect to make a determination relating to the application of the segment reporting disclosure requirements applicable to KushCo during the fourth quarter of 2021.

Voluntary Change in Accounting Principle

During the first quarter of 2022, we made a voluntary change in accounting principle to classify outbound shipping and handling costs associated with the distribution of products to our customers as a component of "general and administrative" costs within our condensed consolidated statements of operations and comprehensive loss.

These costs were previously recorded as a component of "cost of sales" within our condensed consolidated statements of operations and comprehensive loss.

We made the voluntary change in accounting principle because we believe the classification of outbound shipping and handling costs within "general and administrative" costs better reflects the selling effort and enhances the comparability of our financial statements with many of our industry peers.

In accordance with U.S.

GAAP, the change has been reflected in the condensed consolidated statements of operations and comprehensive loss through retrospective application as follows:

For the three months ended March 31, 2021

(in thousands) Prior to Change Effect of Change As Adjusted

Cost of sales $ 26,696 $ ( 1,242 ) $ 25,454

Gross profit $ 7,313 $ 1,242 $ 8,555

General and administrative $ 8,339 $ 1,242 $ 9,581

Total operating expenses $ 15,253 $ 1,242 $ 16,495

Segment Reporting

We manage our global business operations through our operating and reportable business segments.

Due to our recent merger with KushCo, we reassessed and updated our operating segments.

Therefore, beginning with the fourth quarter of 2021, we determined we had following two reportable operating business segments:

(1) Industrial Goods, which largely comprises KushCo's legacy operations across the United States and Canada, and (2) Consumer Goods, which largely comprises Greenlane's legacy operations across the United States, Canada, and Europe.

Our reportable segments have been identified based on how our chief operating decision maker ("CODM"), which is a committee comprised of our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), manage our business, make resource allocation and operating decisions, and evaluate operating performance.

These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021.

Segment disclosures within this Form 10-Q have been retrospectively restated to reflect the change in segments.

See “Note 12—Segment Reporting.”

Revenue Recognition

Revenue is recognized when customers obtain control of goods and services promised by us.

Revenue is measured based on the amount of consideration that we expect to receive in exchange for those goods or services, reduced by promotional discounts and estimates for return allowances and refunds.

Taxes collected from customers for remittance to governmental authorities are excluded from net sales.

We generate revenue primarily from the sale of finished products to customers, whereby each product unit represents a single performance obligation.

We recognize revenue from product sales when the customer has obtained control of the products, which is either upon shipment from one of our fulfillment centers or upon delivery to the customer, depending upon the specific terms and conditions of the arrangement, or at the point of sale for our retail store sales.

We provide no warranty on products sold.

Product warranty is provided by the manufacturers.

Our performance obligations for services are satisfied when the services are rendered within the arranged service period.

Service revenue was de minimis for the three and nine months ended September 30, 2021 and 2020.

Beginning with the first quarter of 2020, we entered into a limited number of bill-and-hold arrangements.

Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met:

(i) the customer has requested delayed delivery and storage of the products by us, in exchange for a storage fee, because they want to secure a supply of the products but lack storage space, (ii) the risk of ownership has passed to the customer, (iii) the products are segregated from our other inventory items held for sale, (iv) the products are ready for shipment to the customer, and (v) the products are customized and thus we do not have the ability to use the products or direct them to another customer.

Revenue under bill-and-hold arrangements was $ 0.2 million and $ 0.5 million for the three and nine months ended September 30, 2021, respectively, and $ 0.5 million and $ 1.5 million for the three and nine months ended September 30, 2020, respectively.

Revenue under bill-and-hold arrangements was $ 0 and $ 0.2 million for the three months ended March 31, 2022 and 2021, respectively.

Storage fees charged to customers for bill-and-hold arrangements are recognized as invoiced.

Such fees were not significant for the three and nine months ended September 30, 2021 and 2020.

For certain product offerings such as premium, patented, child-resistant packaging, closed-system vaporization solutions and custom-branded retail products, we may receive a deposit from the customer (generally 25% - 50% of the total order cost, but the amount can vary by customer contract) when an order is placed by a customer.

We typically complete these orders within one to six months from the date of order, depending on the complexity of the customization and the size of the order, but the completion timeline can vary by product type and terms of sales with each customer.

See “Note 8—Supplemental Financial Statement Information” for a summary of changes to our customer deposits liability balance during the nine months ended September 30, 2021.

We estimate product returns based on historical experience and record them as a refund liability that reduces the net sales for the period.

We analyze actual historical returns, current economic trends and changes in order volume when evaluating the adequacy of our sales returns allowance in any reporting period.

Our liability for returns, which is included within "Accrued

expenses and other current liabilities" in our condensed consolidated balance sheets, was approximately $ 1.1 million and $ 0.8 million as of September 30, 2021 and December 31, 2020, respectively.

The recoverable cost of merchandise estimated to be returned by customers, which is included within "Other current assets" in our condensed consolidated balance sheets, was approximately $ 0.2 million as of September 30, 2021 and December 31, 2020.

We elected to account for shipping and handling expenses that occur after the customer has obtained control of products as a fulfillment activity in cost of sales.

Shipping and handling fees charged to customers are included in net sales upon completion of our performance obligations.

We apply the practical expedient provided for by the applicable revenue recognition guidance by not adjusting the transaction price for significant financing components for periods less than one year.

We also apply the practical expedient provided by the applicable revenue recognition guidance based upon which we generally expense sales commissions when incurred because the amortization period is one year or less.

Sales commissions are recorded within "Salaries, benefits and payroll tax expenses" in the condensed consolidated statements of operations and comprehensive loss.

No single customer represented more than 10% of our net sales for the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021, only one customer customer represented more than 10% of our accounts receivable balance, totaling 15 % of the net, accounts receivable balance.

Such fees were not significant for the three months ended March 31, 2022 and 2021.

Our liability for returns, which is included within "Accrued expenses and other current liabilities" in our condensed consolidated balance sheets, was approximately $ 0.9 million and $ 1.0 million as of March 31, 2022 and December 31, 2021.

For the three months ended March 31, 2022, one customer represented approximately 16 % of our net sales.

No single customer represented more than 10% of our net sales for the three months ended March 31, 2021.

As of March 31, 2022, three customers represented approximately 17 %, 10 %, and 10 % of accounts receivable, respectively.

As of December 31, 2021, two customers represented approximately 13 % and 11 % of accounts receivable, respectively.

Value Added Taxes

During the third quarter of 2020, as part of a global tax strategy review, we determined that our European subsidiaries based in the Netherlands, which we acquired on September 30, 2019, had historically collected and remitted value added tax ("VAT") payments, which related to direct-to-consumer sales to other European Union ("EU") member states, directly to the Dutch tax authorities.

In connection with our subsidiaries' payment of VAT to Dutch tax authorities rather than other EU member states, the German government has commenced a criminal investigation, which could result in penalties;

other jurisdictions could commence such investigations as well.

We performed an analysis of the VAT overpayments to the Dutch tax authorities, which we expect will be refunded to us, and VAT payable to other EU member states, including potential fines and penalties.

Based on this analysis, we recorded VAT payable of approximately $ 3.1 million and $ 9.9 million within "Accrued expenses and other current liabilities" and VAT receivable of approximately $ 0.1 million and $ 4.4 million within "Other current assets" in our condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020, respectively.

We established VAT receivables in jurisdictions where VAT paid exceeds VAT collected and are recoverable through the filing of refund claims.

Our VAT receivable balance as of September 30, 2021 and December 31, 2020 relates to refund claims with the Dutch tax authorities.

In April 2021, we received a refund from the Dutch tax authorities of approximately $ 4.1 million.

In connection with our subsidiaries' payment of VAT to Dutch tax authorities rather than other EU member states, we may become subject to civil or criminal enforcement actions in certain EU jurisdictions, which could result in penalties.

We performed an analysis of the VAT overpayments to the Dutch tax authorities, which we expected to be refunded to us, and VAT payable to other EU member states, including potential fines and penalties.

Based on this analysis, we recorded VAT payable of approximately $ 1.0 million and $ 2.5 million relating to this matter within "Accrued expenses and other current liabilities" in our condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021, respectively.

Pursuant to the purchase and sale agreement by which we acquired our European subsidiaries, the sellers are required to indemnify us against certain specified matters and losses, including any and all liabilities, claims, penalties and costs incurred or sustained by us in connection with non-compliance with tax laws in relation to activities of the sellers.

The indemnity (or indemnification receivable) is limited to an amount equal to the purchase price under the purchase and sale agreement.

As of September 30, 2021 and December 31, 2020, we recognized an indemnification asset of approximately $ 0.1 million and $ 0.9 million within "Other current assets" using the loss recovery model.

We were beneficiaries of a bank guarantee in the amount of approximately $ 0.9 million for claims for which we are entitled to indemnification under the purchase and sale agreement, which we collected in April 2021.

In April 2021, we entered into a settlement agreement with the sellers of Conscious Wholesale requiring the transfer of approximately $ 0.8 million in cash from the sellers' bank accounts, which we also collected in April 2021.

In May 2021, we entered into another settlement with the sellers to place 650,604 shares of our Class A common stock owned by the sellers in escrow, which requires that those securities be sold as necessary to pay additional liabilities of the seller to us under the purchase and sale agreement.

During the three and nine months ended September 30, 2020, we recognized a charge of approximately $ 2.2 million within "general and administrative" expenses in our consolidated statements of operations and comprehensive loss, which represented the difference between the VAT payable and the VAT receivable and indemnification asset recorded as of September 30, 2020.

During the three and nine months ended September 30, 2021, we recognized a gain of approximately $ 0 and $ 1.7 million within "general and administrative expenses" in our condensed consolidated statements of operations and comprehensive loss, which represented the partial reversal of the previously recognized charge, as the indemnification asset became probable of recovery based on the settlement agreements with the sellers and the related amounts collected from the sellers, and a reduction in our previously estimated VAT liability for penalties and interest based on our voluntary disclosure to, and ongoing settlement with, the relevant tax authorities in the EU member states.

During the three months ended March 31, 2022, we recognized a gain of approximately $ 1.8 million within "general and administrative expenses" in our condensed consolidated statements of operations and comprehensive loss, which represented the partial reversal of a charge previously recognized based on the difference between the VAT payable and the VAT receivable and indemnification asset, as the indemnification asset became probable of recovery based on the reduction in our previously estimated VAT liability for penalties and interest based on our voluntary disclosure to, and ongoing settlement with, the relevant tax authorities in the EU member states.

Management intends to pursue recovery of all additional losses from the sellers to the full extent of the indemnification provisions of the purchase and sale agreement, however, the collectability of such additional indemnification amounts may be subject to litigation and may be affected by the credit risk of indemnifying parties, and are therefore subject to significant uncertainties as to the amount and timing of recovery.

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Refer to "Note 7—Commitments and Contingencies" for additional discussion regarding our contingencies.

Recently Adopted Accounting Guidance

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This update was effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

We adopted this standard beginning January 1, 2021.

Adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In January 2020, the FASB issued ASU No.

2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) , which clarifies the interaction of accounting for equity securities under Topic 321, the accounting for equity investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815.

We adopted this guidance beginning January 1, 2021.

Adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06) , which addresses the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity.

The new standard simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity.

This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.

We elected to early adopt the new standard beginning January 1, 2021, on a modified retrospective basis.

Adoption of this standard did not impact our condensed consolidated financial statements, as we did not hold any instruments to which this standard was applicable during the current reporting period nor in earlier reporting periods.

Recently Issued Accounting Guidance Not Yet Adopted

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Early adoption is permitted.

We do not believe the adoption of this new guidance will have a material impact on our condensed consolidated financial statements and disclosures.

We do not believe the adoption of this new guidance will have a material impact on our consolidated financial statements and disclosures.

In March 2020, the FASB issued ASU No.

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BUSINESS ACQUISITIONS

On March 2, 2021, we acquired substantially all the assets of Eyce LLC ("Eyce"), a designer and manufacturer of silicon pipes, bubblers, rigs, and other smoking and vaporization-related accessories and merchandise.

We acquired Eyce to take advantage of expected synergies, which include increased margins from the direct integration of one of our top-selling product lines into our offerings of Greenlane Brands products (as defined below) and the enlistment of key talent in Eyce's founding owners.

We accounted for the Eyce acquisition as a business combination under the acquisition method under ASC Topic 805, Business Combinations .

Eyce has been consolidated in our condensed consolidated financial statements commencing on March 2, 2021, the date of acquisition.

The purchase price for the Eyce acquisition was allocated based on estimates of the fair value of net assets acquired at the acquisition date, with the excess allocated to goodwill.

The total purchase consideration for the Eyce acquisition consisted of the following:

(in thousands) Purchase Consideration

Class A common stock 2,005

Promissory note 2,503

Contingent consideration - payable in cash 914

Contingent consideration - payable in Class A common stock 914

Total purchase consideration $ 8,739

During the three and nine months ended September 30, 2021, we recognized approximately $ 0 and $ 0.3 million in Eyce acquisition-related costs, which were included within "general and administrative" expenses in our condensed consolidated statement of operations and comprehensive loss.

The contingent consideration arrangement requires us to make contingent payments based on the achievement of certain revenue and EBITDA performance targets for the years ending December 31, 2021 and 2022, as set forth in the acquisition agreement.

We estimated the fair value of the contingent consideration by using a Monte Carlo simulation that includes significant unobservable inputs such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period.

As a result of additional information obtained about facts and circumstances that existed as of the acquisition date, we calculated an adjustment to the purchase price related to the estimated fair value of contingent consideration issued, and recorded a measurement period adjustment during the second quarter of 2021.

The following table summarizes the purchase price allocation and the estimated fair value of the net assets acquired at the date of acquisition as of September 30, 2021.

(in thousands) Estimated Fair Value

as of Acquisition Date

(as previously reported) Measurement Period Adjustments Estimated Fair Value as of Acquisition Date

(as adjusted)

Inventory $ 92 $ — $ 92

Developed technology 1,738 — 1,738

Trade name 1,294 — 1,294

Customer relationships 165 — 165

Goodwill 4,840 610 5,450

Total purchase price $ 8,129 $ 610 $ 8,739

Goodwill generated from the Eyce acquisition is primarily related to the value we placed on expected business synergies.

The assignment of goodwill recognized from this business combination to reporting units has not yet been completed as of the date of these financial statements.

We anticipate that the goodwill recognized will be deductible for income tax purposes.

Merger with KushCo Holdings, Inc.

On August 31, 2021, we completed our previously announced merger with KushCo Holdings, Inc.

("KushCo"), pursuant to the terms of an Agreement and Plan of Merger, dated as of March, 31, 2021 (the "Merger Agreement").

Greenlane’s merger with KushCo creates the leading ancillary cannabis products and services company.

The combined company serves a premier group of customers, which includes many of the leading MSOs and LPs, the top smoke shops in the United States, and millions of consumers globally.

Pursuant to the Merger Agreement, Merger Sub Gotham 1, LLC, our wholly owned subsidiary (“Merger Sub 1”), merged with KushCo (the “Initial Surviving Corporation”) (“Merger 1”) and then the Initial Surviving Corporation was merged with and into Merger Sub Gotham 2, LLC, our wholly owned subsidiary (“Merger Sub 2”), with Merger Sub 2 as the surviving limited liability company and a wholly owned subsidiary of Greenlane (“Merger 2,” and together with Merger 1, the “Mergers”).

At the effective time of the Mergers, each KushCo stockholder received 0.3016 shares of Class A common stock, as determined pursuant to the exchange ratio formula set forth in the Merger Agreement (the “Exchange Ratio”) for each share of KushCo’s common stock, $ 0.01 par value per share (“KushCo common stock”), issued and outstanding immediately prior to the effective time of the Mergers, with cash paid for any fractional shares that a KushCo stockholder would have otherwise been entitled to receive.

Immediately following the Mergers, stockholders that held Greenlane common stock prior to the completion of the Mergers owned 51.9 % and former KushCo stockholders owned 48.1 % of the equity of the combined company on a fully diluted basis.

Pursuant to the Merger Agreement, immediately prior to the consummation of the Mergers, holders of Class C common stock received one-third of one share of Class B common stock for each share of Class C common stock held immediately prior to the closing of the mergers, and Greenlane adopted the A&R Charter, which eliminated Class C common stock as a class of Greenlane’s capital stock.

Treatment of KushCo Equity Awards

At the effective time of the Mergers, options to purchase shares of KushCo common stock (“KushCo options”) were treated as follows:

• Each KushCo option that was outstanding immediately prior to the Merger 1 effective time, whether or not then vested or exercisable (but after taking into account any acceleration or vesting as provided under the KushCo equity plan covering such option), was converted into an option to purchase, on the same terms and conditions that applied to such KushCo option immediately prior to the Merger 1 effective time, (A) that number of shares of Class A common stock, rounded down to the nearest whole share, determined by multiplying (1) the total number of KushCo shares subject to such KushCo option immediately prior to the Merger 1 effective time by (2) the Exchange Ratio, (B) at a per-share exercise price, rounded up to the nearest whole cent, determined by dividing (1) the exercise price per share covered by such KushCo option immediately prior to the Merger 1 effective time by (2) the Exchange Ratio;

• Greenlane assumed the sponsorship of the KushCo Holdings, Inc.

2016 Stock Incentive Plan covering such KushCo options (the “KushCo Equity Plan”), and all references to KushCo therein were deemed references to Greenlane and all references to shares of KushCo common stock therein were deemed references to Class A common stock;

• Each KushCo restricted stock unit (a “KushCo RSU”) that was then held and remained outstanding immediately prior to the Merger 1 effective time accelerated and became vested in full in accordance with the terms of the KushCo equity plan covering such KushCo RSUs and each such KushCo RSU was immediately settled and treated in the same manner as shares of KushCo common stock in the Mergers.

Effect of Merger 1 on KushCo Warrants

Additionally, each warrant to purchase one or more shares of KushCo common stock (a “KushCo Warrant”), whether exercisable or not, was converted into a warrant to purchase Class A common stock.

Greenlane assumed each such KushCo Warrant in accordance with its terms (the “Assumed Warrants”).

With respect to the Assumed Warrants:

(i) the Assumed Warrants are exercisable solely for shares of Class A common stock;

(ii) the number of shares of Class A common stock subject to such Assumed Warrants is equal to the number of shares of KushCo common stock subject to such Assumed Warrants as of immediately prior to the effective time of Merger 1 multiplied by the Exchange Ratio, rounded up to the nearest whole share;

and (iii) the per share exercise price under each such Assumed Warrant was adjusted by dividing the per share exercise price under such Assumed Warrant by the Exchange Ratio and rounding up to the nearest cent.

Estimated Purchase Consideration and Preliminary Purchase Price Allocation

We accounted for the KushCo acquisition as a business combination under the acquisition method under ASC Topic 805, Business Combinations .

KushCo has been consolidated in our condensed consolidated financial statements commencing on August 31, 2021, the date of acquisition.

The initial accounting for the acquisition, including the purchase price allocation, is preliminary pending completion of the fair value analyses of the replacement warrants and replaced equity compensation awards, as well as pending completion of the fair value analyses of assets acquired and liabilities assumed.

We allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition.

The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill.

We determined the preliminary estimated fair values after

review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimated made by management.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received.

We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

The total estimated purchase consideration for the KushCo acquisition consisted of the following:

(in thousands) Purchase Consideration

Class A common stock (1) $ 123,491

Estimated fair value of assumed warrants 8,423

Estimated fair value of replaced equity awards 4,759

Greenlane cash payments on behalf of KushCo (2) 12,183

Total purchase consideration $ 148,856

(1) Based on approximately 48.8 million shares of Greenlane Class A common stock issued, multiplied by the closing price per share of Greenlane Class A common stock on Nasdaq on August 31, 2021, the acquisition date, of $ 2.54 .

(2) Represents cash paid by Greenlane on the acquisition date to extinguish certain debt and other liabilities of KushCo, which were not legally assumed by Greenlane.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price allocation (in thousands):

(in thousands) Estimated Fair Value as of Acquisition Date

Assets acquired

Accounts receivable 7,110

Inventories 35,112

Vendor deposits 7,011

Other current assets 8,111

Property and equipment 6,200

Operating lease right-of-use assets 7,581

Other assets 2,896

Intangible assets - customer relationships 39,500

Intangible assets - trademarks 29,500

Intangible assets - proprietary design library 3,100

Goodwill 24,314

Total estimated assets acquired 172,737

Liabilities assumed

Accounts payable 5,876

Accrued expenses and other current liabilities 6,496

Customer deposits 3,934

Operating lease liabilities 7,575

Total estimated liabilities assumed 23,881

Total estimated purchase price and consideration transferred in the merger $ 148,856

Goodwill generated from the KushCo acquisition is primarily related to the value we placed on expected business synergies.

The assignment of goodwill recognized from this business combination to reporting units has also not yet been completed as of the date of these financial statements.

We anticipate that the goodwill recognized will be deductible for income tax purposes.

During the three and nine months ended September 30, 2021, we recognized transaction costs of approximately $ 4.5 million and $ 7.8 million in connection with the Mergers, consisting primarily of advisory, legal, valuation and accounting fees, which

were recorded in "general and administrative expenses" in the accompanying condensed consolidated statements of operations and comprehensive loss.

Supplemental Unaudited Pro Forma Financial Information

The following table presents pro forma results for the three and nine months ended September 30, 2021 and 2020 as if our acquisition of Eyce and the closing of the merger with KushCo had occurred on January 1, 2020, and Eyce and KushCo's results had been included in our consolidated results beginning on that date (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

On August 31, 2021, we completed our previously announced merger with KushCo pursuant to the terms of the Merger Agreement dated as of March, 31, 2021.

On November 29, 2021, we acquired substantially all the assets of Organicix, LLC (d/b/a and hereinafter referred to as “DaVinci”), a leading developer and manufacturer of premium portable vaporizers.

The following table presents pro forma results for the three months ended March 31, 2022 and 2021 as if our acquisition of Eyce and DaVinci, along with the closing of the merger with KushCo, had occurred on January 1, 2021, and Eyce, DaVinci, and KushCo's results had been included in our consolidated results beginning on that date (in thousands):

For the three months ended March 31,

Net sales $ 46,534 $ 62,793

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Net loss $ ( 18,749 ) $ ( 18,235 )

The pro forma amounts have been calculated after applying our accounting policies to the financial statements of Eyce and KushCo and adjusting the combined results of Greenlane, Eyce and KushCo (a) to remove Eyce product sales to us and to remove the cost incurred by us related to products purchased from Eyce prior to the acquisition, and (b) to reflect the increased amortization expense that would have been charged assuming intangible assets identified in the acquisitions of Eyce and KushCo had been recorded on January 1, 2020.

The impact of the Eyce acquisition and the KushCo merger on the actual results reported by us in subsequent periods may differ significantly from that reflected in this pro forma information for a number of reasons, including but not limited to, non-achievement of the expected synergies from these combinations and changes in the regulatory environment.

The pro forma amounts have been calculated after applying our accounting policies to the financial statements of Eyce and KushCo and adjusting the combined results of Greenlane, Eyce, DaVinci and KushCo (a) to remove Eyce and DaVinci product sales to us and to remove the cost incurred by us related to products purchased from Eyce and DaVinci prior to the acquisition, and (b) to reflect the increased amortization expense that would have been charged assuming intangible assets identified in the acquisitions of Eyce, DaVinci, and KushCo had been recorded on January 1, 2021.

The impact of the Eyce and DaVinci acquisition and the KushCo merger on the actual results reported by us in subsequent periods may differ significantly from that reflected in this pro forma information for a number of reasons, including but not limited to, non-achievement of the expected synergies from these combinations and changes in the regulatory environment.

As a result, the pro forma information is not necessarily indicative of what our financial condition or results of operations would have been had the acquisitions been completed on the applicable date of this pro forma financial information.

In addition, the pro forma financial information does not purport to project our future financial condition and results of operations.

Supplemental Information of Operating Results

"Net sales" in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 includes approximately $ 0.3 million to $ 0.5 million of net sales contributed by Eyce e-commerce and wholesale customers since the date of the acquisition.

Eyce's operating activities have been integrated with an existing subsidiary of the Operating Company, and we owned Eyce inventory from purchases preceding the acquisition date.

As such, the identification of post-acquisition "net loss" is impracticable for the three and nine months ended September 30, 2021.

"Net sales" and "net loss" in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 include approximately $ 12.6 million of net sales and approximately $ 6.7 million of net loss contributed by KushCo since the date of the acquisition.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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The carrying amounts for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain accrued expenses and other assets and liabilities, approximate fair value due to the short-term nature of these instruments.

As of September 30, 2021, we had equity securities, an interest rate swap contract and contingent consideration related to the Eyce acquisition that are required to be measured at fair value on a recurring basis.

Our equity securities consist of investments in XS Financial Inc.

( 10.2 % ownership) and High Tide Inc.

( 0.1 % ownership).

We have determined that our ownership does not provide us with significant influence over the operations of these investments.

As of March 31, 2022, we had equity securities, an interest rate swap contract and contingent consideration that are required to be measured at fair value on a recurring basis.

Our equity securities that are required to be measured at fair value on a recurring basis consist of investments in XS Financial Inc.

and High Tide Inc.

We have determined that our ownership does not provide us with significant influence over the operations of these entities.

Accordingly, we account for our investment in these entities as equity securities, and we record changes in the fair value of these investments in "other income (expense), net" in our condensed consolidated statements of operations and comprehensive loss.

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Condensed Consolidated

Balance Sheet Caption Fair Value at September 30, 2021

Balance Sheet Caption Fair Value at March 31, 2022

(in thousands) Level 1 Level 2 Level 3 Total

Equity securities Other assets $ 1,617 $ — $ — $ 1,617

Interest rate swap contract Other assets — 70 — 70

Total Assets $ 1,617 $ 70 $ — $ 1,687

Interest rate swap contract Other long-term liabilities $ — $ 409 $ — $ 409

Contingent consideration - current Accrued expenses and other current liabilities $ — $ — $ 2,812 $ 2,812

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(in thousands) Level 1 Level 2 Level 3 Total

Interest rate swap contract Other long-term liabilities $ — $ 665 $ — $ 665

Equity securities Other assets $ 1,919 $ — $ — $ 1,919

Total Assets $ 1,919 $ — $ — $ 1,919

Interest rate swap contract Other liabilities $ — $ 288 $ — $ 288

Contingent consideration - current Accrued expenses and other current liabilities — — 5,641 5,641

Contingent consideration - long-term Other long-term liabilities — — 1,216 1,216

Total Liabilities $ — $ 288 $ 6,857 $ 7,145

The estimated fair values of our financial instruments have been determined using available market information and what we believe to be appropriate valuation methodologies.

There were no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2021.

There were no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy during the three months ended March 31, 2022 and 2021, respectively.

Derivative Instrument and Hedging Activity

On July 11, 2019, we entered into an interest rate swap contract to manage our risk associated with the interest rate fluctuations on our floating rate Real Estate Note.

On July 11, 2019, we entered into an interest rate swap contract to manage our risk associated with the interest rate fluctuations on the Company's floating rate Real Estate Note described in Note 6.

The counterparty to this instrument is a reputable financial institution.

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Since our interest rate swap value is based on the LIBOR forward curve and credit default swap rates, which are observable at commonly quoted intervals for the full term of the swap, it is considered a Level 2 measurement.

Details of the outstanding swap contract as of September 30, 2021, which is a "pay-fixed and receive-floating" contract, are as follows:

Details of the outstanding swap contract as of March 31, 2022 are as follows:

Swap Maturity Notional Value

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We performed an initial qualitative assessment of hedge effectiveness using the hypothetical derivative method in the period in which the hedging transaction was entered, as the critical terms of the hypothetical derivative and the hedging instrument were the same.

Quarterly, we perform a qualitative analysis for prospective and retrospective assessments of hedge effectiveness.

The unrealized loss on the derivative instrument is included within "Other comprehensive loss" in our condensed consolidated statements of operations and comprehensive loss.

There was no measure of hedge ineffectiveness and no reclassifications from other comprehensive loss into interest expense for the three and nine months ended September 30, 2021 or 2020.

On a quarterly basis, we perform a qualitative analysis for quarterly prospective and retrospective assessments of hedge effectiveness.

The unrealized loss on the derivative instrument is included within "Other comprehensive income (loss)" in our condensed consolidated statement of operations and comprehensive loss.

There was no measure of hedge ineffectiveness and no reclassifications from other comprehensive loss into interest expense for the three months ended March 31, 2022 and 2021.

Contingent Consideration

Each period we revalue our contingent consideration obligations associated with business acquisitions to their fair value.

Additional purchase price payments ranging from $ 0 to $ 3.5 million are contingent upon the achievement of certain revenue and EBITDA targets measured through December 31, 2022.

The estimate of the fair value of contingent consideration is determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period, and therefore represents a Level 3 measurement.

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Changes in the fair value of contingent consideration are included within "Other income (expense), net" in our condensed consolidated statements of operations and comprehensive loss.

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2021 is as follows:

(in thousands) Contingent Consideration

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:

(in thousands) Three months ended

March 31, 2022

Balance at December 31, 2021 $ 6,857

Eyce 2021 Contingent Payment settlement in Class A common stock ( 875 )

DaVinci 2021 Contingent Payment settlement in Class A common stock ( 2,611 )

Gain from fair value adjustments included in results of operations ( 5 )

Balance March 31, 2022 $ 3,366

(in thousands) Three months ended

March 31, 2021

Balance at December 31, 2020 $ —

Contingent consideration issued for Eyce acquisition 1,218

Loss from fair value adjustments included in results of operations 755

Balance at September 30, 2021

Balance at March 31, 2021 $ 1,218

Equity Securities Without a Readily Determinable Fair Value

Our investment in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc.

( 1.5 % ownership), Sun Grown Packaging, LLC ("Sun Grown") ( 10.0 % ownership) and Vapor Dosing Technologies, Inc.

("VIVA") ( 8.8 % ownership).

Our investment in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc., Sun Grown Packaging, LLC ("Sun Grown") and Vapor Dosing Technologies, Inc.

We determined that our ownership interests do not provide us with significant influence over the operations of these investments.

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Airgraft Inc., Sun Grown, and VIVA are private entities and their equity securities do not have a readily determinable fair value.

We elected to measure these security under the measurement alternative election at cost minus impairment, if any, with adjustments through earnings for observable price changes in orderly transactions for the identical or similar investment of the same issuer.

We did not identify any fair value adjustments related to these equity securities during the three and nine months ended September 30, 2021 and 2020.

At September 30, 2021 and December 31, 2020, the carrying value of our investment in equity securities without a readily determinable fair value was approximately $ 2.5 million and $ 2.0 million, respectively, included within "Other assets" in our condensed consolidated balance sheets.

We elected to measure these equity securities under the measurement alternative election at cost minus impairment, if any, with adjustments through earnings for observable price changes in orderly transactions for the identical or similar investment of the same issuer.

We acquired our investments in Sun Grown and VIVA as part of our merger with KushCo, which we completed in August 2021.

We did not identify any fair value adjustments related to these equity securities during the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022 and December 31, 2021, the carrying value of our investment in equity securities without a readily determinable fair value was approximately $ 2.5 million, respectively, included within "Other assets" in our condensed consolidated balance sheets.

The carrying value included a fair value adjustment of $ 1.5 million based on an observable price change recognized during the year ended December 31, 2019.

Greenlane as a Lessee

As of September 30, 2021, we had facilities financed under operating leases consisting of warehouses, offices, and retail stores, with lease term expirations between 2021 and 2026.

As of March 31, 2022, we had facilities financed under operating leases consisting of warehouses, offices, and retail stores, with lease term expirations between 2022 and 2027.

Lease terms are generally three to seven years for warehouses, office space and retail store locations.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides details of our future minimum lease payments under finance and operating lease liabilities recorded in our condensed consolidated balance sheet as of September 30, 2021.

The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.

(in thousands) Finance Leases Operating Leases Total

Remainder of 2021 $ 64 $ 790 $ 854

2022 179 3,320 3,499

2023 114 2,805 2,919

2024 19 1,983 2,002

2025 — 1,419 1,419

The following table provides details of our future minimum lease payments under finance and operating lease liabilities recorded in our condensed consolidated balance sheet as of March 31, 2022.

The table below does not include commitments

that are contingent on events or other factors that are currently uncertain or unknown.

(in thousands) Operating Leases

Thereafter 29

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Long-term portion $ 4,346

Rent expense under operating leases was approximately $ 0.5 million and $ 1.2 million for the three and nine months ended September 30, 2021, and approximately $ 0.3 million and $ 1.2 million for the three and nine months ended September 30, 2020.

The majority of our finance lease obligations relate to leased warehouse equipment.

Payments under our finance lease agreements are fixed for terms ranging from three to five years .

We recorded approximately $ 0.4 million of finance lease assets, net within " property and equipment, net " as of September 30, 2021 and December 31, 2020, and the related liabilities within "current portion of finance leases" and "finance leases, less current portion" in our condensed consolidated balance sheets.

Rent expense under operating leases was approximately $ 0.8 million and $ 0.3 million for three months ended March 31, 2022 and 2021, respectively.

The following expenses related to our operating leases were included in "general and administrative" expenses within our condensed consolidated statements of operations and comprehensive loss:

For the three months ended

(in thousands) 2022 2021

Operating lease costs

Operating lease cost

Variable lease cost

Total lease cost $ 801 $ 289

The table below presents lease-related terms and discount rates as of March 31, 2022:

March 31, 2022

Weighted average remaining lease terms

Operating leases 3.2 years

Weighted average discount rate

Operating leases 2.7 %

Greenlane as a Lessor

As of September 30, 2021, we had five operating leases for office space leased to third-party tenants in our corporate headquarters building in Boca Raton, Florida.

Rental income of approximately $ 0.2 million and $ 0.5 million for three and nine months ended September 30, 2021, and $ 0.1 million and $ 0.5 million for the three and nine months ended September 30, 2020, was included within “other income, net” in our condensed consolidated statements of operations and comprehensive loss.

We have five operating leases for office space leased to third-party tenants in our corporate headquarters building in Boca Raton, Florida and one sublease in California.

For the three months ended March 31, 2022 and 2021, respectively, we recorded approximately $ 0.3 million and $ 0.2 million in rental income related to these operating leases, which we included within “Other income, net” in our condensed consolidated statements of operations and comprehensive loss.

The following table represents the maturity analysis of undiscounted cash flows related to lease payments, which we expect to receive from our existing operating lease agreements with tenants:

(in thousands) Rental Income

Remainder of 2021 $ 189

2025 and thereafter 53

LONG TERM DEBT

Our long-term debt, excluding operating and finance lease liabilities, consisted of the following amounts at the dates indicated:

(in thousands) September 30, 2021 December 31, 2020

Rental Income (in thousands)

Total $ 1,190

Our debt balance, excluding operating lease liabilities and finance lease liabilities, consisted of the following amounts at the dates indicated:

(in thousands) March 31, 2022 December 31, 2021

Real Estate Note $ 7,911 $ 7,958

Bridge Loan 8,000 8,000

DaVinci Promissory Note 4,367 5,000

Eyce Promissory Note 1,280 1,592

21,558 22,550

Less unamortized debt issuance costs ( 323 ) ( 328 )

Less current portion of long-term debt ( 1,429 ) ( 182 )

Notes payable, net, excluding operating leases and finance leases $ 8,698 $ 7,844

Line of Credit

On April 5, 2019, the Operating Company, as the borrower, entered into a second amendment to the first amended and restated credit agreement, dated October 1, 2018 (the "line of credit") with Fifth Third Bank, for a $ 15.0 million revolving credit loan with a maturity date of August 23, 2020.

In August 2020, the maturity date of the line of credit was further extended to November 30, 2020.

The line of credit was not renewed on November 30, 2020.

There were no borrowings outstanding on the line of credit at September 30, 2021 or December 31, 2020.

Less current portion of debt ( 11,602 ) ( 11,615 )

Debt, net, excluding operating leases and finance leases $ 9,633 $ 10,607

Real Estate Note

In October 2018, one of the Operating Company’s wholly-owned subsidiaries financed the purchase of a building which serves as our corporate headquarters through a real estate term note (the “Real Estate Note”) in the principal amount of $ 8.5 million.

Principal payments plus accrued interest at a rate of LIBOR plus 2.39 % are due monthly, with a final payment of all remaining outstanding principal and accrued interest due in October 2025.

The Real Estate Note contains customary covenants and restrictions, including, without limitation, covenants that require us to comply with laws, restrictions on our ability to incur additional indebtedness, and various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under the Real Estate Note and execution upon the collateral securing obligations under the Real Estate Note.

As of September 30, 2021, we were in compliance with the Real Estate Note covenants.

On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries financed the purchase of a building which serves as our corporate headquarters through a real estate term note (the “Real Estate Note”) in the principal amount of $ 8.5 million.

Principal payments plus accrued interest at a rate of one-month LIBOR plus 2.39 % are due monthly, with a final payment of all remaining outstanding principal and accrued interest due in October 2025.

Our obligations under the Real Estate Note are secured by a mortgage on the property.

The Real Estate Note is subject to an interest rate swap contract, see "Note 4—Fair Value of Financial Instruments."

Eyce LLC Promissory Note

In March 2021, one of the Operating Company's wholly-owned subsidiaries financed the acquisition of Eyce through the issuance of an unsecured promissory note (the "Eyce Promissory Note") in the principal amount of $ 2.5 million.

As of March 31, 2022, we were in compliance with the Real Estate Note covenants.

Our Real Estate Note is subject to an interest rate swap contract, see “Note 4—Fair Value of Financial Instruments.”

One-month LIBOR is expected to be discontinued and replaced after June 2023 and the credit facility has a maturity date beyond that time.

There can be no assurances as to what the alternative base rate will be once one-month LIBOR is discontinued, and we can provide no assurances whether that base rate will be more or less favorable than LIBOR.

We intend to monitor the developments with respect to the phasing out of one-month LIBOR and work with our lenders to ensure that any transition away from one-month LIBOR will have minimal impact on our financial condition but can provide no assurances regarding the impact of LIBOR discontinuation.

Eyce Promissory Note

In March 2021, one of the Operating Company's wholly-owned subsidiaries financed a portion of the consideration of the acquisition of Eyce through the issuance of an unsecured promissory note (the "Eyce Promissory Note") in the principal amount of $ 2.5 million.

Principal payments plus accrued interest at a rate of 4.5 % are due quarterly through April 2023.

DaVinci Promissory Note

In November 2021, one of the Operating Company's wholly-owned subsidiaries financed the acquisition of DaVinci through the issuance of an unsecured promissory note (the "DaVinci Promissory Note") in the principal amount of $ 5.0 million.

Principal payments plus accrued interest at a rate of 4.0 % are due quarterly through October 2023.

In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of the Company, in which Mr.

LoCascio provided us with a bridge loan in the principal amount of $ 8.0 million (the “Bridge Loan”).

The Bridge Loan accrues interest at a rate of 15.0 % is due monthly, and the principal amount is due in full in June 2022.

We incurred $ 0.3 million of debt issuance costs related to the Bridge Loan, which are recorded as a direct deduction from the carrying amount of the Bridge Loan, and which will continue to be amortized over the term of the Bridge Loan through interest expense.

COMMITMENTS AND CONTINGENCIES

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However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

Subsequent to the announcement of Greenlane’s acquisition of KushCo, three complaints were filed against Greenlane and its directors:

one is captioned Richard Garreffa v.

Greenlane Holdings, Inc., Aaron LoCascio, Adam Schoenfeld, Neil Closner, Richard Taney and Jeff Uttz , Case No.

1:21-cv-05512 (S.D.N.Y.), filed June 23, 2021;

one is captioned Lance K.

Greenlane Holdings, Inc., Aaron LoCascio, Adam Schoenfeld, Neil Closner, Richard Taney and Jeff Uttz , Case No.

1:21-cv-05635 (S.D.N.Y.), filed June 29, 2021;

and one is captioned Eric Sabatini v.

Greenlane Holdings, Inc., Aaron LoCascio, Adam Schoenfeld, Neil Closner, Richard Taney, and Jeff Uttz , Case No.

2:21-cv-06571 (C.D.

Cal.), filed August 13, 2021 (the “Actions”).

The Actions name as defendants Greenlane and each of the members of the Greenlane board of directors.

The Actions allege, among other things, that all defendants violated provisions of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") insofar as this registration statement on Form S-4 preliminarily filed by Greenlane on May 28, 2021 allegedly omits material information with respect to the transactions contemplated therein that purportedly renders the preliminary registration statement false and misleading.

The complaints seek, among other things, injunctive relief, rescissory damages, an award of plaintiffs’ fees and expenses and a trial by jury.

The two cases filed in the District Court for the Southern District of New York have been voluntarily dismissed by the plaintiffs.

The Company believes the claims asserted in the remaining Action are without merit and intends to vigorously defend them.

KushCo, a predecessor-in-interest to Greenlane Holdings, LLC, and its directors were also named as defendants in two lawsuits related to KushCo’s merger with Greenlane:

one is captioned Hugh Meighan v.

KushCo Holdings, Inc., Nick Kovacevich, Eric Baum, Barbara Goodstein, Donald H.

Hunter, Dallas Imbimbo, and Pete Kadens, Case No.

1:21-cv-04048 (E.D.N.Y.), filed on July 19, 2021 (the "Meighan Matter"), and one is captioned Cliff Hartfield v.

KushCo Holdings, Inc., Nicholas Kovacevich, Eric Baum, Barbara Goodstein, Donald H.

Hunter, Dallas Imbimbo, and Pete Kadens , Case No.

1:21-cv-06818 (S.D.N.Y.), filed on August 13, 2021 (together with the Meighan Matter, the “KushCo Actions”).

The KushCo Actions name as defendants KushCo and each of the members of the KushCo’s board of directors.

The KushCo Actions allege, among other things, that all defendants violated provisions of the Exchange Act, insofar as the definitive joint proxy statement filed by KushCo allegedly omits and/or misrepresents material information concerning (i) KushCo and Greenlane’s financial projections, (ii) the financial analyses performed by KushCo’s financial advisor, Jefferies LLC ("Jefferies"), in connection with its fairness opinion, and (iii) potential conflicts of interest involving Jefferies that purportedly render certain sections of the definitive joint proxy statement false and misleading.

The complaints seek, among other things, injunctive relief, rescissory damages, an award of plaintiffs’ fees and expenses and a trial by jury.

The Meighan Matter was voluntarily dismissed by the plaintiffs.

The defendants believe the claims asserted in the KushCo Actions are without merit and intend to vigorously defend them.

Other Contingencies

We have not taken any reserves for litigation for the year ended December 31, 2021.

Other Commitments and Contingencies

We are potentially subject to claims related to various non-income taxes (such as sales, value added, consumption, and similar taxes) from various tax authorities, including in jurisdictions in which we already collect and remit such taxes.

If the relevant taxing authorities were successfully to pursue these claims, we could be subject to significant additional tax liabilities.

See "Note 5—Leases" for details of our future minimum lease payments under finance lease liabilities and operating lease liabilities.

See "Note 5—Leases" for details of our future minimum lease payments under operating lease liabilities.

See "Note 11—Incomes Taxes" for information regarding income tax contingencies.

SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Assets Held for Sale

An asset group classified as held for sale is reflected at the lower of its carrying amount or estimated fair value less cost to sell.

If the carrying amount of the assets exceeds its estimated fair value, a loss is recognized.

We recorded approximately $ 0.1 million and $ 0.9 million of machinery held for sale within "Assets Held for Sale" as of September 30, 2021 and December 31, 2020, respectively.

We completed the sale of approximately $ 0.7 million of machinery during the second quarter of 2021, and are actively seeking a buyer and expect to complete the sale of the remaining machinery held for sale by the end of 2021.

We recognized approximately $ 0.2 million in impairment charges during the three and nine months ended September 30, 2021.

We did no t recognize any impairment charges during the three and nine months ended September 30, 2020.

Other Current Assets

The following table summarizes the composition of other current assets as of the dates indicated:

(in thousands) September 30, 2021 December 31, 2020

Other current assets:

VAT refund receivable $ 146 $ 4,391

Prepaid expenses 3,569 1,542

Indemnification receivable, net 124 921

Other 7,172 4,038

$ 11,011 $ 10,892

Accrued Expenses and Other Current Liabilities

The following table summarizes the composition of accrued expenses and other current liabilities as of the dates indicated:

(in thousands) September 30, 2021 December 31, 2020

Accrued expenses and other current liabilities:

VAT payable $ 3,084 $ 9,882

(in thousands) March 31, 2022 December 31, 2021

VAT payable (including amounts related to VAT matter described in Note 2) $ 3,188 $ 4,393

Contingent consideration 2,812 5,641

Payroll related including bonus 5,814 2,361

Accrued employee compensation 6,392 6,055

Accrued professional fees 2,475 1,700

Accrued third-party logistics fees 272 1,295

Refund liability 1,100 785

Current portion of long-term debt 1,429 182

Refund liability (including accounts receivable credit balances) 1,294 1,481

Accrued construction in progress (ERP) 1,086 1,061

Sales tax payable 872 1,034

Other 7,152 3,932

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Customer Deposits

For certain product offerings such as child-resistant packaging, closed-system vaporization solutions and custom-branded retail products, we may receive a deposit from the customer (generally 25 % - 50 % of the total order cost, but the amount can vary by customer contract), when an order is placed by a customer.

We typically complete orders related to customer deposits within one to six months from the date of order, depending on the complexity of the customization and the size of the order, but the order completion timeline can vary by product type and terms of sale with each customer.

Changes in our customer deposits liability balance during the nine months ended September 30, 2021 were as follows:

Changes in our customer deposits liability balance during the three months ended March 31, 2022 were as follows:

(in thousands) Customer Deposits

Balance as of December 31, 2021 $ 7,924

Customer deposits assumed as part of KushCo acquisition (Note 3 - Business Acquisitions) 3,934

Increases due to deposits received, net of other adjustments 5,213

Revenue recognized ( 6,299 )

Balance as of September 30, 2021

Balance as of March 31, 2022 $ 6,838

We typically complete orders related to customer deposits within six weeks to three months from the date of order, depending on the complexity of the customization and the size of the order.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) for the periods presented were as follows:

(in thousands) Foreign Currency Translation Unrealized Loss on Derivative Instrument Total

(in thousands) Foreign Currency Translation Unrealized Gain or (Loss) on Derivative Instrument Total

Balance at December 31, 2021 $ 282 $ 42 $ 324

Other comprehensive (loss) income ( 59 ) 256 $ 197

Other comprehensive loss (income) attributable to non-controlling interest 20 ( 154 ) $ ( 134 )

Balance at September 30, 2021

$ 144 $ ( 52 ) $ 92

(in thousands) Foreign Currency Translation Unrealized Loss on

Derivative Instrument Total

Other comprehensive income (loss) 88 358 446

Other comprehensive (income) loss attributable to non-controlling interest ( 17 ) ( 68 ) ( 85 )

Balance at March 31, 2022 $ 353 $ 332 $ 685

(in thousands) Foreign Currency Translation Unrealized Gain or (Loss) on Derivative Instrument Total

Balance at December 31, 2020 $ 183 $ ( 154 ) $ 29

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Other comprehensive (income) loss attributable to non-controlling interest 99 ( 130 ) ( 31 )

Balance at September 30, 2020

$ 21 $ ( 175 ) $ ( 154 )

Balance at March 31, 2021 $ 127 $ ( 80 ) $ 47

Supplier Concentration

Our four largest vendors accounted for an aggregate of approximately 29.2 % and 22.8 % of our total net sales and 53.2 % and 84.0 % of our total purchases for the three and nine months ended September 30, 2021, respectively, and an aggregate of approximately 38.4 % and 22.1 % of our total net sales and 27.9 % and 43.1 % of our total purchases for the three and nine months ended September 30, 2020, respectively.

We expect to maintain our existing relationships with these vendors.

Our four largest vendors accounted for an aggregate of approximately 44.6 % and 42.9 % of our total net sales and 67.0 % and 35.5 % of our total purchases for the three months ended March 31, 2022 and 2021, respectively.

We expect to maintain our relationships with these vendors.

Related Party Transactions

The Company sold certain products and supplies to a related party during the three months ended September 30, 2021.

Sales to related parties during the three and nine months ended September 30, 2021 totaled $ 0.1 million.

Sales to related parties during the three and nine months ended September 30, 2020 were $ 0 .

Total accounts receivable due from related parties were $ 0.4 million and $ 0 as of September 30, 2021 and December 30, 2020, respectively.

Nicholas Kovacevich, our Chief Executive Officer and Dallas Imbimbo, who served on our Board prior to his resignation on April 8, 2022, own capital stock of Unrivaled Brands Inc.

(“Unrivaled”) and serve on the Unrivaled board of directors.

Net sales to Unrivaled for the three months ended March 31, 2022 and 2021 totaled $ 0.2 million and $ 0 , respectively.

Total accounts receivable due from Unrivaled were $ 0.6 million and $ 0.4 million as of March 31, 2022 and December 31, 2021, respectively.

Adam Schoenfeld, co-founder and a current director of the Company, has a significant ownership interest in one of our customers, Universal Growing.

Net sales to Universal Growing for the three months ended March 31, 2022 and 2021 totaled approximately $ 0.1 million, respectively.

Total accounts receivable due from Universal Growing as of March 31, 2022 and December 31, 2021 were de minimis.

In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of the Company, with respect to the $ 8.0 million Bridge Loan described under Note 6 above.

STOCKHOLDERS’ EQUITY

Shares of our Class A common stock have both voting interests and economic interests (i.e., the right to receive distributions or dividends, whether cash or stock, and proceeds upon dissolution, winding up or liquidation), while shares of our Class B common stock have voting interests but no economic interests.

Each share of our Class A common stock and Class B common stock entitles the record holder thereof to one vote on all matters on which stockholders generally are entitled to vote, and except as otherwise required in the A&R Charter, the holders of Common Stock will vote together as a single class on all matters (or, if any holders of our preferred stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of preferred stock).

Class A Common Stock Repurchase Program

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The share repurchase program does not obligate us to repurchase any common stock and may be modified, discontinued, or suspended at any time.

Shares of Class A common stock repurchased under the program are subsequently retired.

There were no share repurchases under the program during the three and nine months ended September 30, 2021 or 2020.

Shares of Class A common stock repurchased

under the program are subsequently retired.

There were no share repurchases under the program during the three months ended March 31, 2022 or 2021, respectively.

Non-Controlling Interest

As discussed in “Note 1—Business Operations and Organization,” we consolidate the financial results of the Operating Company in our condensed consolidated financial statements and report a non-controlling interest related to the Common Units held by non-controlling interest holders.

As of September 30, 2021, we owned 78.5 % of the economic interests in the Operating Company, with the remaining 21.5 % of the economic interests owned by non-controlling interest holders.

The non-controlling interest in the accompanying consolidated statements of operations and comprehensive loss represents the portion of the net loss attributable to the economic interest in the Operating Company held by the non-controlling holders of Common Units calculated based on the weighted average non-controlling interests’ ownership during the periods presented.

As of March 31, 2022, we owned 82.9 % of the economic interests in the Operating Company, with the remaining 17.1 % of the economic interests owned by non-controlling interest holders.

The non-controlling interest in the accompanying condensed consolidated statements of operations and comprehensive loss represents the portion of the net loss attributable to the economic interest in the Operating Company held by the non-controlling holders of Common Units calculated based on the weighted average non-controlling interests’ ownership during the periods presented.

At-the-Market Equity Offering

Net proceeds from sales of our shares of Class A common stock under the ATM Program are expected to be used for working capital and general corporate purposes.

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We are under no obligation to offer and sell shares of our Class A common stock under the ATM Program.

Since the launch of the ATM program and through September 30, 2021, we sold 54,278 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $ 0.2 million.

Shares of our Class A common stock will be issued pursuant to our effective shelf registration statement on Form S-3 (File No.

333-257654), and a prospectus supplement relating to the Class A common stock that was filed with the Securities and Exchange Commission on April 18, 2022.

Pursuant to Instruction I.B.6, in no event will the Company sell Class A common stock through the ATM Program with a value exceeding more than one-third of the Company’s “public float” (the market value of the Company’s Class A common stock and any other equity securities that it issues in the future that are held by non-affiliates) in any twelve-month period so long as the Company’s public float remains below $75.0 million.

On April 18, 2022, we entered into Amendment No.

1 (the “Amendment”) to the sales agreement dated August 2, 2022 with Cowen.

The purpose of the Amendment is to add the limitations imposed on the ATM Program by General Instruction I.B.6 of Form S-3 (“Instruction I.B.6”) to the sales agreement.

At the time of our entry into the Amendment, approximately $ 38.7 million in shares remained available for issuance under the ATM Program.

During the three months ended March 31, 2022, we sold 11,134,715 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $ 7.0 million and paid fees to the sales agent of approximately $ 0.2 million.

Common Stock and Warrant Offering

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The Standard Warrants are exercisable for five years from the date of issuance.

Each Pre-Funded Warrant was exercisable for one Share of Class A common stock at an exercise price of $ 0.01 .

Each Pre-Funded Warrant was exercisable with no expiration date for one Share of Class A common stock at an exercise price of $ 0.01 .

The Offering generated gross proceeds of approximately $ 31.9 million and net proceeds to the Company of approximately $ 29.9 million.

All Pre-Funded Warrants were exercised prior to September 30, 2021, based upon which we issued an additional 5,926,583 shares of our Class A common stock, for net proceeds of approximately $ 0.1 million.

All Pre-Funded Warrants were exercised in August and September 2021, based upon which we issued an additional 5,926,583 shares of our Class A common stock, for net proceeds of approximately $ 0.1 million.

Class C Common Stock Conversion

On August 31, 2021, we completed our merger with KushCo.

Pursuant to the Merger Agreement, immediately prior to the consummation of the Mergers, holders of Class C common stock, $ 0.0001 par value per share, received one-third of one share

of Class B common stock, for each share of Class C common stock held, and Greenlane adopted the A&R Charter which eliminated Class C common stock as a class of Greenlane’s capital stock.

Net Loss Per Share

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Diluted net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of Class A common stock is as follows (in thousands, except per share amounts):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of our Class A common stock is as follows (in thousands, except per share amounts):

Three months ended March 31,

(in thousands, except per share data) 2022 2021

Net loss $ ( 18,749 ) $ ( 7,714 )

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Net loss per share of Class A common stock - basic and diluted $ ( 0.17 ) $ ( 0.28 )

For the three and nine months ended September 30, 2021 and 2020, respectively, shares of Class B common stock, shares of Class C common stock and stock options and warrants to purchase Class A common stock were excluded from the weighted-average in the computation of diluted net loss per share of Class A common stock because the effect would have been anti-dilutive.

For the three months ended March 31, 2022 and 2021, shares of Class B common stock, shares of Class C common stock and stock options and warrants to purchase Class A common stock were excluded from the weighted-average in the computation of diluted net loss per share of Class A common stock because the effect would have been anti-dilutive.

Shares of our Class B common stock and Class C common stock do not share in our earnings or losses and are therefore not participating securities.

As such, separate calculations of basic and diluted net loss per share for each of our Class B common stock and Class C common stock under the two-class method have not been presented.

Class C Common Stock Conversion

Pursuant to the Merger Agreement, immediately prior to the consummation of the Mergers, holders of Class C common stock, $ 0.0001 par value per share, received one-third of one share of Class B common stock, for each share of Class C common stock held, and Greenlane adopted the A&R Charter which eliminated Class C common stock as a class of Greenlane’s capital stock.

See "Note 3 - Business Acquisitions" for additional details regarding our acquisition of KushCo, which was completed on August 31, 2021.

COMPENSATION PLANS

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We previously registered 5,000,000 shares of Class A common stock that are or may become issuable under the 2019 Plan as stock options and other equity-based awards to employees, directors and executive officers.

In August 2021, we adopted, and our shareholder approved the Amended and Restated 2019 Equity Incentive Plan (the "Amended 2019 Plan"), which amends and restates the 2019 Plan in its entirety.

Amended 2019 Plan, among other things, increases the number of shares of Class A common stock available for issuance under the 2019 Plan by 2,860,367 .

In August 2021, we adopted, and our shareholders approved, the Amended and Restated 2019 Equity Incentive Plan (the "Amended 2019 Plan"), which amends and restates the 2019 Plan in its entirety.

The Amended 2019 Plan, among other things, increases the number of shares of Class A common stock available for issuance under the 2019 Plan by 2,860,367 .

The Amended 2019 Plan provides eligible participants with compensation opportunities in the form of cash and equity incentive awards.

The 2019 Plan is designed to enhance our ability to attract, retain and motivate our employees, directors, and executive officers, and incentivizes them to increase our long-term growth and equity value in alignment with the interests of our stockholders.

On August 31, 2021, we completed our previously announced merger with KushCo Holdings, Inc.

("KushCo"), pursuant to the terms of an Agreement and Plan of Merger, dated as of March, 31, 2021 (the "Merger Agreement").

See "Note 3 - Business Acquisitions" for additional details.

At the effective time of the Mergers, options to purchase shares of Class A common stock (the “Greenlane options”) and shares of Greenlane restricted stock were treated as follows:

• Each unvested Greenlane option, other than Greenlane options held by non-employee directors of Greenlane, accelerated and became vested in full;

• Each Greenlane option held by non-employee directors of Greenlane, whether vested or unvested, remained outstanding (and unvested, as applicable) in accordance with the terms of Greenlane’s equity plan covering each such option;

• Each unvested share of Greenlane restricted stock and each unvested common unit of the Operating Company, other than Greenlane restricted stock or Greenlane restricted common units held by non-employee directors of Greenlane, accelerated and became vested in full in accordance with the terms of Greenlane’s equity plan covering each such award;

• Each unvested share of Greenlane restricted stock or Greenlane restricted common units of Greenlane held by non-employee directors of Greenlane, whether vested or unvested, remained outstanding (and unvested, as applicable) in accordance with the terms of Greenlane’s equity plan covering each such award.

The Greenlane equity awards vesting acceleration was accounted for as a modification under ASC Topic 718, Compensation - Stock Compensation .

KushCo Equity Plan

As described in "Note 3 - Business Acquisitions," in connection with the Mergers, we assumed the sponsorship of the KushCo Equity Plan.

On August 31, 2021, we completed our previously announced merger with KushCo pursuant to the Merger Agreement dated as of March, 31, 2021.

In connection with the completion of our merger with KushCo, we assumed the sponsorship of the KushCo Equity Plan.

We do not intend to make future grants under the KushCo Equity Plan.

Rule 10b5-1 Trading Plans

During the three months ended March 31, 2022, Section 16 officer Adam Schoenfeld had an equity trading plan in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act.

An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of our Class A common stock, including shares acquired under our equity plans.

Equity-Based Compensation Expense

Equity-based compensation expense is included within "salaries, benefits and payroll taxes" in our condensed consolidated statement of operations and comprehensive loss.

Equity-based compensation expense is included within "salaries, benefits and payroll taxes" in our condensed consolidated statements of operations and comprehensive loss.

We recognized equity-based compensation expense as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

For the three months ended

(in thousands) 2022 2021

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Total equity-based compensation expense $ 873 $ 530

Total remaining unrecognized compensation expense as of September 30, 2021 was as follows:

Total remaining unrecognized compensation expense as of March 31, 2022 was as follows:

Remaining Unrecognized Compensation Expense

September 30, 2021 Weighted Average Period over which Remaining Unrecognized Compensation Expense is Expected to be Recognized

March 31, 2022 Weighted Average Period over which Remaining Unrecognized Compensation Expense is Expected to be Recognized

(in thousands) (in years)

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Restricted stock units (RSUs) - Class A common stock 25 2.9

Common units of the Operating Company — 0

Total remaining unrecognized compensation expense $ 2,195

As a result of the IPO we own a portion of the Common Units of the Operating Company, which is treated as a partnership for U.S.

As a result of the IPO and the related transactions completed in April 2019, we own a portion of the Common Units of the Operating Company, which is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

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We are a corporation subject to U.S.

federal income taxes, in additional to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income.

As of September 30, 2021 and December 31, 2020, management performed an assessment of the realizability of our deferred tax assets based upon which management determined that it is not more likely than not that the results of operations will generate sufficient taxable income to realize portions of the net operating loss benefits.

Consequently, we established a full valuation allowance against our deferred tax assets, and reflected a carrying balance of $ 0 as of September 30, 2021 and December 31, 2020, respectively.

federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020, made tax law changes to provide financial relief to companies as a result of the business impacts of COVID-19.

Key income tax provisions of the CARES Act include changes in net operating loss carryback and carryforward rules, acceleration of alternative minimum tax credit recovery, increase in the net interest expense deduction limit and charitable contribution limit, and immediate write-off of qualified improvement property.

The changes are not expected to have a significant impact on us.

The Consolidation Appropriations Act of 2021, enacted on December 27, 2020, extended and enhanced COVID relief provisions of the CARES Act.

The Company has evaluated the impact of the Consolidated Appropriation Act and determined that its impact is not material to the Company’s financial statements.

As of March 31, 2022 and December 31, 2021, management performed an assessment of the realizability of our deferred tax assets based upon which management determined that it is not more likely than not that the results of operations will generate sufficient taxable income to realize portions of the net operating loss benefits.

Consequently, we established a full valuation allowance against our deferred tax assets, and reflected a carrying balance of $ 0 as of March 31, 2022 and December 31, 2021, respectively.

In the event that management determines that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance will be made, which would reduce the provision for income taxes.

The provision for and benefit from income taxes for the three and nine months ended September 30, 2021 and 2020, respectively, relates to taxes in foreign jurisdictions, including Canada and the Netherlands.

For the three and nine months ended September 30, 2021, the effective tax rate differed from the U.S.

The provision for and benefit from income taxes for the three months ended March 31, 2022 and 2021, respectively, relates to taxes in foreign jurisdictions, including Canada and the Netherlands.

For the three months ended March 31, 2022 and 2021, the effective tax rate differed from the U.S.

federal statutory tax rate of 21% primarily due to the Operating Company's pass-through structure for U.S.

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versus foreign tax jurisdictions, and the valuation allowance against the deferred tax asset.

For the three and nine months ended September 30, 2021, we did not have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period.

We do not record U.S.

income taxes on the undistributed earnings of our foreign subsidiaries, except for the Canadian subsidiary, based upon our intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the United States.

In the event we are required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences.

Uncertain Tax Positions

For the three months ended March 31, 2022 and 2021, we did not have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period.

No interest or penalties have been recorded as a result of tax uncertainties.

The changes are not expected to have a significant impact on us.

The Company is subject to audit examination for federal and state purposes for the years 2018 – 2020.

Tax Receivable Agreement (TRA)

We entered into the TRA with the Operating Company and each of the members that provides for the payment by the Operating Company to the members of 85 % of the amount of tax benefits, if any, that we may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis resulting from any future redemptions of Common Units as described in “Note 1—Business Operations and Organization” and (ii) certain other tax benefits attributable to payments made under the TRA.

We entered into the TRA with the Operating Company and each of the members (other than Greenlane Holdings, Inc.) that provides for the payment by the Operating Company to the members of 85 % of the amount of tax benefits, if any, that we may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis resulting from any future redemptions of Common Units as described in “Note 1—Business Operations and Organization” and (ii) certain other tax benefits attributable to payments made under the TRA.

The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits.

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The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Operating Company generates each year and the applicable tax rate.

As noted above, we evaluated the realizability of the deferred tax assets resulting from the IPO and established a full valuation allowance against those benefits.

As noted above, we evaluated the realizability of the deferred tax assets resulting from the IPO and the related transactions completed in April 2019 and established a full valuation allowance against those benefits.

As a result, we determined that the amount or timing of payments to noncontrolling interest holders under the TRA are no longer probable or reasonably estimable.

Based on this assessment, our TRA liability was $ 0 as of September 30, 2021 and December 31, 2020.

Based on this assessment, our TRA liability was $ 0 as of March 31, 2022 and December 31, 2021.

If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, we will record a liability related to the TRA, which would be recognized as expense within our condensed consolidated statements of operations and comprehensive (loss) income.

During the three and nine months ended September 30, 2021 and 2020, we did not make any payments, inclusive of interest, to members of the Operating Company pursuant to the TRA.

During the three months ended March 31, 2022 and 2021, we did not make any payments, inclusive of interest, to members of the Operating Company pursuant to the TRA.

SEGMENT REPORTING

We merchandise vaporizers and other products in the United States, Canada and Europe and we distribute to retailers through our wholesale operations and to consumers through e-commerce activities and 4 brick and mortar locations;

with two in the

United States, one in Spain and one in the Netherlands.

We define our segments as those operations whose results our Chief Operating Decision Makers ("CODMs") regularly review to analyze performance and allocate resources.

We define our segments as those operations whose results are regularly reviewed by our CODM to analyze performance and allocate resources.

Therefore, segment information is prepared on the same basis that management reviews financial information for operational decision-making purposes.

On August 31, 2021, we completed our acquisition of KushCo, see "Note 3 - Business Acquisitions" for additional details.

The assignment of goodwill recognized from this business combination to reporting units has not yet been completed as of the date of these financial statements.

We expect to make a determination relating to the application of the segment reporting disclosure requirements applicable to KushCo during the fourth quarter of 2021.

The reportable segments identified are our business activities for which discrete financial information is available and for which operating results are regularly reviewed by our CODMs.

As of September 30, 2021, we have three reportable segments:

(1) United States, (2) Canada and (3) Europe.

The United States operating segment is comprised of our United States operations, the Canadian operating segment is comprised of our Canadian operations, and the European operating segment is comprised of our European operations, currently based in the Netherlands.

Corporate and other activities which are not allocated to our reportable segments consist primarily of equity-based compensation expenses and other corporate overhead items.

We sell similar products and services in each of our segments.

The table below provides information on revenues from external customers, intersegment revenues, and income (loss) before income taxes for our reportable segments for the three and nine months ended September 30, 2021 and 2020.

We eliminate intersegment revenues in consolidation.

Three Months Ended September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020 2021 2020

Revenue from external customers:

United States $ 37,501 $ 28,984 $ 96,862 $ 82,482

Canada 982 4,447 4,955 12,362

Europe 2,831 2,333 8,221 7,188

Corporate and other — — — —

$ 41,314 $ 35,764 $ 110,038 $ 102,032

Intercompany revenues:

United States $ 4,092 $ 3,865 $ 10,129 $ 9,273

Canada — 17 16 55

Europe 608 561 2,058 1,653

Corporate and other — — — —

$ 4,700 $ 4,443 $ 12,204 $ 10,981

Income (loss) before income taxes:

United States $ ( 18,969 ) $ ( 10,757 ) $ ( 25,378 ) $ ( 27,353 )

Canada ( 94 ) 321 ( 730 ) 626

Europe ( 2,186 ) ( 3,187 ) ( 2,679 ) ( 4,320 )

Corporate and other ( 7,464 ) 50 ( 13,494 ) ( 5,650 )

$ ( 28,712 ) $ ( 13,573 ) $ ( 42,280 ) $ ( 36,697 )

Our CODM is a committee comprised of our CEO and our CFO.

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 the following two operating segments as of March 31, 2022 and 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 across the United States and Canada.

These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021.

The segment disclosures below have been retrospectively restated to reflect the change in segments.

The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary Greenlane Brands, including Eyce, DaVinci, VIBES, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like PAX, 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 Greenlane Brands.

The Industrial Goods segment focuses on serving the premier brands, operators, and retailers through our wholesale operations by providing ancillary products essential to their growth, such as customizable packaging and supply products and vaporization solutions offering which includes CCELL branded products.

Our 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 three months ended March 31, 2022 and 2021, respectively.

There were no material intersegment sales during the three months ended March 31, 2022 and 2021, respectively.

For the three months ended

March 31, 2022 For the three months ended

March 31, 2021

(in thousands) Consumer Goods Industrial Goods Total Consumer Goods Industrial Goods Total

Net sales $ 17,141 $ 29,393 $ 46,534 $ 30,544 $ 3,465 $ 34,009

Cost of sales 14,319 26,247 40,566 22,934 2,520 25,454

Gross profit $ 2,822 $ 3,146 $ 5,968 $ 7,610 $ 945 $ 8,555

The following table sets forth specific asset categories which are reviewed by our CODM in the evaluation of operating segments:

As of March 31, 2022 As of December 31, 2021

(in thousands) Consumer Goods Industrial Goods Total Consumer Goods Industrial Goods Total

Accounts receivable, net $ 6,710 $ 13,193 $ 19,903 $ 3,746 $ 10,944 $ 14,690

Inventories, net $ 33,326 $ 35,200 $ 68,526 $ 32,142 $ 34,840 $ 66,982

Vendor deposits $ 9,731 $ 2,754 $ 12,485 $ 9,675 $ 8,800 $ 18,475

SUBSEQUENT EVENTS

On October 13, 2021, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) to acquire the Organicix, LLC (d/b/a DaVinci and hereinafter referred to as “DaVinci”) brand and substantially all of the assets of DaVinci.

Pursuant to the Purchase Agreement, the total consideration for the acquisition will be up to $ 20.0 million, comprised of both cash and the issuance of shares of our Class A common stock to DaVinci and certain of its affiliates.

As partial consideration for the acquisition, we will issue a number of shares of our Class A common stock to DaVinci and certain of its affiliates equal to the quotient obtained by dividing (i) $ 5,250,000 by (ii) the 10-day volume-weighted average price per share of our Class A common stock on the Nasdaq Global Market (the “Nasdaq”) as measured on the date immediately prior to the closing of the transaction and rounded up to the next whole share.

In addition, we may be required to issue a number of shares of our Class A common stock equal to the quotient obtained by dividing (i) $ 3,000,000 by (ii) the 10-day volume-weighted average price per share of our Class A common stock on the Nasdaq measured as of December 31, 2021 and rounded up to the next whole share upon DaVinci’s attainment of certain financial benchmarks.

In addition, we may be required to issue a number of shares of our Class A common stock equal to the quotient obtained by dividing (i) $ 250,000 by (ii) the 10-day volume-weighted average price per share of our Class A common stock on the Nasdaq measured as of the close of business the day immediately prior to the date that a public announcement is made regarding each qualifying new product launch by DaVinci in the 24 month period

following the closing of the transaction (subject to extension under certain circumstances) and rounded up to the next whole share, subject to a $ 1,750,000 cap.

The closing of the acquisition is expected to occur in the fourth quarter of 2021.

Entry into Amended Eyce Asset Purchase Agreement

On April 7, 2022, the Company entered into an amendment to that certain Asset Purchase Agreement, dated March 2, 2021 (the “Amended Eyce APA”), by and between Eyce and Warehouse Goods LLC, a wholly owned subsidiary of the Company, to accelerate the issuance of shares of Class A common stock issuable to Eyce under the agreement upon the attainment of certain EBITDA and revenue benchmarks (the “Amended 2022 Contingent Payment”).

The shares of Class A common stock issuable to Eyce under the Amended 2022 Contingent Payment will vest ratably in seven tranches starting on July 1, 2022, such that on January 1, 2024 (the “Vesting Date”), all shares issuable to Eyce under the Amended 2022 Contingent Payment will have been issued to Eyce.

The shares of Class A common stock issuable under the Amended 2022 Contingent Payment are subject to certain forfeiture restrictions tied to the continued employment of Eyce personnel with the Company through the Vesting Date.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements