What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 214 added, 153 removed, 78 unchanged (82% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of Greenlane Holdings, Inc.

and its consolidated subsidiaries (“Greenlane” and, collectively with the Operating Company and its consolidated subsidiaries, the “Company”, "we", "us" and "our") for the quarterly period ended September 30, 2021 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes of Greenlane Holdings, Inc.

and its consolidated subsidiaries (“Greenlane” and, collectively with the Operating Company and its consolidated subsidiaries, the “Company”, "we", "us" and "our") for the quarterly period ended March 31, 2022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes of Greenlane Holdings, Inc.

for the year ended December 31, 2021, which are included in our Annual Report on Form 10-K.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events.

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.

In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could” and similar expressions.

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• statements of management’s goals and objectives;

● statements regarding anticipated government regulations and policies;

• statements regarding laws, regulations, and policies relevant to our business;

• projections of revenue, earnings, capital structure and other financial items;

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Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 and included under Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and in this Quarterly Report on Form 10-Q.

Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") and in other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").

Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements.

These risks include, but are not limited to, those listed below and those discussed in greater detail in Part I, Item 1A of the 2021 Annual Report under the heading “Risk Factors."

• our strategy, outlook and growth prospects;

• general economic trends and trends in the industry and markets in which we operate;

• public heath crises, including the COVID-19 pandemic;

• our dependence on, and our ability to establish and maintain business relationships with, third-party suppliers and service suppliers;

• the competitive environment in which we operate;

• our vulnerability to third-party transportation risks;

• the impact of governmental laws and regulations and the outcomes of regulatory or agency proceedings;

• our ability to accurately estimate demand for our products and maintain appropriate levels of inventory;

• our ability to maintain or improve our operating margins and meet sales expectations;

• our ability to adapt to changes in consumer spending and general economic conditions;

• our ability to use or license certain trademarks;

• our ability to maintain consumer brand recognition and loyalty of our products;

• our and our customers’ ability to establish or maintain banking relationships;

• fluctuations in U.S.

federal, state, local and foreign tax obligation and changes in tariffs;

• our ability to address product defects;

• our exposure to potential various claims, lawsuits and administrative proceedings;

• contamination of, or damage to, our products;

• any unfavorable scientific studies on the long-term health risks of vaporizers, electronic cigarettes, or cannabis or hemp-derived products, including cannabidiol (“CBD”);

• failure of our information technology systems to support our current and growing business;

• our ability to prevent and recover from Internet security breaches;

• our ability to generate adequate cash from our existing business to support our growth;

• our ability to raise capital on favorable terms, or at all, to support the continued growth of the business;

• our ability to protect our intellectual property rights;

• our dependence on continued market acceptance of our products by consumers;

• our sensitivity to global economic conditions and international trade issues;

• our ability to comply with certain environmental, health and safety regulations;

• our ability to successfully identify and complete strategic acquisitions;

• natural disasters, adverse weather conditions, operating hazards, environmental incidents and labor disputes;

• increased costs as a result of being a public company;

• our failure to maintain adequate internal controls over financial reporting.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein.

These statements should be considered only after carefully reading the risk factors and the other information in our Annual Report on Form 10-K for the year ended December 31, 2020, the risk factors in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and this entire Quarterly Report on Form 10-Q.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Consequently, you should not place undue reliance on forward-looking statements.

Founded in 2005, Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, child-resistant packaging, vape solutions, and lifestyle products.

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the Marley Natural accessory line;

the K.Haring Glass Collection accessory line;

Haring Glass Collection accessory line;

Aerospaced & Groove grinders;

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and Higher Standards, which is both an upscale product line and an innovative retail experience with flagship stores at New York City’s famed Chelsea Market and the iconic Malibu Village in California.

During 2021, we have taken significant strides to grow our brand portfolio including with the March acquisition of substantially all of the assets of Eyce LLC and more recently, in October, the execution of a definitive agreement to acquire substantially all of the assets of DaVinci LLC.

Furthermore, as a pioneer in the ancillary cannabis space, Greenlane is the partner of choice for many of the industry's leading MSOs, LPs, and brands, including PAX Labs, Grenco Science, Storz & Bickel, Firefly, DaVinci, Santa Cruz Shredder, Cookies, and CCELL.

We also own and operate several industry-leading e-commerce platforms, including Vapor.com, Higherstandards.com, Aerospaced.com, Harringglass.com, Eycemolds.com, Canada.Vapor.com, Vaposhop.com, and recently-acquired Puffitup.com.

These e-commerce platforms offer convenient, flexible shopping solutions directly to consumers.

During 2021, we have taken significant strides to grow our brand portfolio including with the March acquisition of substantially all of the assets of Eyce LLC and more recently, the November acquisition of substantially all of the assets of Organicix LLC dba DaVinci Tech.

We merchandise vaporizers, packaging, and other products in the United States, Canada, and Europe and we distribute to retailers through wholesale operations and to consumers through e-commerce activities and our retail stores.

We operate distribution centers in the United States, Canada, and Europe.

With the completion of the distribution center consolidation and the merger with KushCo, we have established a lean and scalable distribution network that leverages a mix of leased warehoused spaces in California and Massachusetts along with third-party logistics ("3PL") locations in our US, Canadian, and European reporting segments.

We have three distinct operating segments, including our United States, Canadian, and European operations.

Under those segments, we market and sell our products in the business to business (“B2B”), business to consumer (“B2C”) and supply and packaging (“S&P”) areas of the marketplace.

We have a diverse base of customers, and our top ten customers accounted for only 22.9% and 11.8% of our net sales for the three and nine months ended September 30, 2021, with no single customer accounting for more than 6.1% and 2.3% of our net sales for the three and nine months ended September 30, 2021.

O ur sales teams regularly interact with customers to service their frequent restocking needs.

We believe our high-touch customer service model strengthens relationships, builds loyalty and drives repeat business.

Summary of Results – Comparison of Three and Nine Months Ended September 30, 2021 and September 30, 2020

For the three months ended September 30, 2021, our B2B and S&P revenues represented approximately 40.2% and 40.2% of net sales, respectively, as compared to 63.3% and 11.8% of net sales, respectively, during the same period in 2020.

The decrease in B2B and increase in S&P sales as a percentage of total revenue was driven by an increase of $13.0 million in S&P sales as a result of the KushCo merger.

B2C and Channel and Drop-Ship revenues represented 9.8% and 9.9% of net sales, respectively in the third quarter of 2021 compared to 11.9% and 13.1% during the same period in 2020.

These decreases were also driven by the increase in overall sales due to the KushCo merger.

For the three and nine months ended September 30, 2021, our net sales increased by $5.6 million and $8.0 million compared to the three and nine months ended September 30, 2020 due to the $13.0 million revenue increase from KushCo's September sales.

Similar to previous quarters during 2021, nicotine revenue continues to be minimal representing 0.3% of total revenue for the three months ended September 30, 2021.

For the three months ended September 30, 2021, Greenlane Brands sales totaled $8.4 million, representing a $1.7 million, or 25.7%, increase as compared to the three months ended September 30, 2020 .

For the nine months ended September 30, 2021, net Greenlane Brands sales grew $6.5 million, or 33.4%, to $25.9 million compared to $19.4 million in the nine months ended September 30, 2020 .

As a percentage of total sales, Greenlane Brands sales increased from 18.7% of total revenue for Q3 2020, to 20.4% of total revenue for Q3 2021.

The growth in VIBES was the largest driver of this increase with a record three and nine months revenues.

Total VIBES revenue was $3.2 million and $8.9 million for the three and nine months

ended September 30, 2021 and compared to $1.3 million and $3.8 million for the same periods in 2020, representing increases of $1.9 million, or 144.3%, and $5.1 million, or 134.8%, respectively.

As we look ahead to the key drivers of growth in our business, we will continue to focus on the higher-margin parts of the business that will better position us for the long-term, through continued investment in growing our Greenlane Brands.

With respect to our purchasing activities, we have experienced supply chain issues for both Greenlane Brands and other top selling bran ds due to record shipment backlogs that impacted various so uthern California ports over the course of the year.

We are continuing to monitor our supply-chain activities and are making adjustments to our purchasing to meet any anticipated changes in demand and product availability.

Regulatory Developments

Our operating results and pros pects will be impacted, directly and indirectly, by regulatory developments at the local, state, and federal levels.

Certain changes in local, state, national, and international laws and regulations, such as increased legalization of cannabis, create significant opportunities for our business.

However, other changes to laws and regulations result in restrictions on which products we are permitted to sell and the manner in which we market our products, increased taxation of our products, and negative changes to the public perceptions of our products, among other effects.

We believe the continuing trend of states’ legalization of medicinal and adult-use cannabis is likely to contribute to an increase in the demand for many of our products.

In the 2020 election, voters approved ballot initiatives legalizing adult-use cannabis in New Jersey, Arizona, Montana and South Dakota.

More recently, voters also approved initiatives legalizing medical marijuana in Mississippi and South Dakota.

Additionally, New York, New Mexico, Virginia, and Connecticut have also passed laws permitting adult-use cannabis.

Although we expect additional states to follow suit, we can provide no assurances that additional states will legalize cannabis or that legal challenges will not impede legalization in jurisdictions where ballot initiatives or legislation have already passed.

Additionally, efforts to reform federal laws related to marijuana in the United States have gained momentum recently.

In July 2021, Senate Majority Leader Chuck Schumer, along with other senators, introduced the Cannabis Administration and Opportunity Act ("CAOA").

If adopted, the CAOA would legalize the sale of cannabis under federal law, subject to regulation by various state and federal agencies.

While many commentators view the CAOA as having low odds of passage this year, we believe that the introduction of this bill is a significant step forward towards federal legalization of cannabis.

In response to health concerns, including concerns about e-cigarette or vaping product use associated lung injury (“EVALI”) and about people under the age of eighteen using vaping products, several localities, states, and the federal government have enacted measures restricting the sale of certain types of vaping products.

For example, on December 20, 2019, legislation was signed into law that raised the federal minimum age of sale for tobacco products from 18 to 21.

As another example, on January 2, 2020, the United States Food and Drug Administration ("FDA") announced a new policy prioritizing enforcement against certain unauthorized flavored e-cigarette products that appeal to minors, including fruit and mint flavors, as well as of any other products that are targeted to minors.

More recently, as discussed above, t he FDA announced its intention to take enforcement measures related to ENDS products offered for sale after September 9, 2020 for which the manufacturer has not submitted a Premarket Tobacco Product Application ("PMTA").

Additionally, some state, provincial, and local governments have enacted or plan to enact laws and regulations that restrict the sale of certain types of vaping products.

For example, several states and localities have implemented bans on certain flavored vaping products in an effort to reduce the appeal of such products to minors and some localities have banned the sale of nicotine vaping products entirely.

Other states, including Arkansas, Maine, Utah, and Vermont have banned the sale of vaporizers direct to consumers through mail.

These new vaping laws are rapidly shifting and, in some instances, have been repealed or narrowed as the result of successful legal challenges.

Laws banning certain vaping products or restricting the manner in which they may be sold have taken effect or will soon take effect in Arkansas, Massachusetts, New York, New Jersey, Maryland, Rhode Island, Vermont, Utah and Maine among other jurisdictions.

Taken together, these federal, state, and provincial restrictions on vaping products could materially and adversely affect our revenues .

The ultimate impact of these policy developments will depend upon, among other things, the types and quantities of products we sell that are encompassed by each ban, the success of legal challenges to the bans, our suppliers' actions to adapt to actual and potential regulatory changes, and our ability to provide alternative products.

In addition, 28 states and the District of Columbia have recently adopted laws imposing taxes on liquid nicotine.

Additionally, at least eleven states have adopted laws imposing taxes on vaporizers.

These taxes will result in increased prices to end consumers, which may adversely impact the demand for our products.

We expect these taxes would impact our competitors similarly, assuming their compliance with applicable laws.

Prevent All Cigarette Trafficking (PACT Act) Amendment

As part of the “Consolidated Appropriations Act, 2021,” Congress amended the Prevent All Cigarette Trafficking Act (“PACT Act") to apply to electronic nicotine delivery systems ("ENDS"), as that term is defined by the PACT Act.

The PACT Act, among other things, prohibits the use of the U.S.

Postal Service (“USPS”) to deliver ENDS.

The PACT Act also requires

that sellers of ENDS implement certain age verification measures for direct-to-consumer sales, register with the Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF") and the tobacco tax administrators of the states into which shipments are made, and file monthly reports demonstrating payment of applicable taxes.

Additionally, possibly as a result of the PACT Act amendments, FedEx and UPS adopted policies banning the shipment of vaping products starting on March 1st, 2021 and April 5th, 2021, respectively.

Substantial uncertainty exists regarding which products may not be shipped pursuant to the PACT Act and the policies of FedEx and UPS.On October 20, 2021, USPS released its final rules (the "Final Rule") addressing the definition of ENDS under the PACT Act, among other topics.

The Final Rule makes clear that products which are incapable of use with a liquid solution are not considered ENDS and, therefore, are not subject to the PACT Act's mailing ban.

The vast majority of our parcel shipments have not historically contained products defined as ENDS under the PACT Act and we have access to alternative carriers to continue shipping ENDS, albeit at a higher cost.

There is minimal impact to our Industrial Goods division, which distributes products defined as ENDS under the PACT Act via freight.

Notwithstanding the foregoing, if FedEx and UPS continue to maintain restrictive shipping policies, our shipping costs will be adversely impacted.

Despite the logistical and regulatory burdens created by the PACT Act and the carriers' policies, we believe we are well positioned in comparison to our competitors and may derive several advantages from the amended PACT Act.

We already maintain the required state licensure and have a compliance infrastructure that is already being utilized to satisfy the PACT Act's requirements.

In contrast, some of our competitors do not currently have the required licensure and may have to devote significant resources to achieve compliance with the PACT Act, if they can achieve compliance at all.

Moreover, our shipping volumes enable us to obtain relatively favorable terms with private carriers who permit the shipment of ENDS.

Additionally, our compliance and logistics capabilities also allow us to offer fulfillment services to companies that cannot or do not wish to directly ship ENDS to customers, potentially creating an additional revenue stream.

Critical Accounting Policies and Estimates

See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2020.

The impact of the PACT Act continues to unfold and remains uncertain.

As a result, many of our estimates and assumptions, such as those used in determining the allowance for slow-moving or obsolete inventory, the accounts receivable allowance for doubtful accounts, the valuation of goodwill, and the valuation of contingent consideration required increased judgment and carried a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, our estimates and assumptions may change materially in future periods.

Many of our products are sourced from suppliers who may use their own third-party manufacturers, and our product costs and gross margins may be impacted by the product mix we sell in any given period.

Furthermore, legacy Greenlane and legacy KushCo margins are significantly different, due to their respective customer bases, product mix and types of transactions.

Legacy KushCo revenue is comprised of a stable customer base of wholesale and business to business customers, resulting in a lower-volume of transactions with a higher average transaction price and lower margin sales.

Conversely, legacy Greenlane sales are comprised of business to business, retail and e-commerce sales that consist of a higher volume of transactions with lower average prices and higher margins.

Gross margin, or gross profit as a percentage of net sales, has been and will continue to be affected by a variety of factors, including the average mark-up over the cost of our products;

the mix of products sold;

purchasing efficiencies;

the level of sales for certain third-party brands, which carry contractual profit sharing obligations;

and the potential impact on freight costs arising from passing of the PACT Act amendments.

On March 10, 2022, the Company announced via press release its 2022 Plan to reduced its cost structure, increase liquidity, and accelerate its path to profitability.

The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of the Company's headquarter building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products, and the securing of an asset based loan that will support working capital needs.

Management believes that the 2022 Plan will significantly reduce costs, help accelerate the Company's path to profitability, support the growth of the business in a non-dilutive manner, and allow the Company to reinvest capital into its highest margin and highest growth potential product lines, such as its Greenlane Brands.

Discontinuation of Nicotine Sales and Increased Focus on Greenlane Brands

Over the course of 2021, we reduced our reliance on lower-margin third-party nicotine brands and increased our focus on our Greenlane Brands, as part of our strategy to scale our portfolio of proprietary brands to build the leading house of brands in the ancillary cannabis industry.

As evidence of this, sales from nicotine products decreased to $0 of total net sales for the three months ended March 31, 2022 from $1.7 million, or 5.1% of total net sales for the same period in 2021.

We intend to keep lower-margin third-party nicotine brands eliminated entirely over the course of 2022.

In December 2019, a novel strain of coronavirus known as COVID-19 was reported in Wuhan, China.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

Since the outbreak of COVID-19, we have closely monitored developments and operated with the health and safety of our employees as the Company's top priority.

Although the impact of the COVID-19 pandemic has not had a significant adverse impact on our operations, we cannot reasonably estimate the length or severity of this pandemic on the macroeconomic environment which we operate in.

Accordingly, the extent to which the COVID-19 pandemic will impact our financial condition or results of operations will depend on future developments, such as the duration and intensity of the pandemic, the effectiveness of COVID-19 vaccines and booster shots, and the overall impact on our customers, employees, vendors, and operations.

Results of Operations

The following table presents our operating results (unaudited):

Three Months Ended September 30, Nine Months Ended September 30,

% of net sales % of net sales

($ in thousands) 2021 2020 % Change 2021 2020 2021 2020 % Change 2021 2020

United States $ 37,501 $ 28,984 29.4 % 90.8 % 81.0 % $ 96,862 $ 82,482 17.4 % 88.0 % 80.8 %

Canada 982 4,447 (77.9) % 2.4 % 12.4 % 4,955 12,362 (59.9) % 4.5 % 12.1 %

Europe 2,831 2,333 21.3 % 6.9 % 6.5 % 8,221 7,188 14.4 % 7.5 % 7.0 %

Total net sales 41,314 35,764 15.5 % 100.0 % 100.0 % 110,038 102,032 7.8 % 100.0 % 100.0 %

The following table presents operating results for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

% of Net sales Change

2022 2021 2022 2021 $ %

Net sales $ 46,534 $ 34,009 100.0 % 100.0 % $ 12,525 36.8 %

Cost of sales 40,566 25,454 87.2 % 74.8 % 15,112 59.4 %

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General and administrative 11,715 9,581 25.2 % 28.2 % 2,134 22.3 %

Goodwill impairment charge — — * — % — % — 8,996 * — % 8.8 %

Depreciation and amortization 2,403 544 5.2 % 1.6 % 1,859 341.7 %

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Other income (expense), net (54) 324 (0.1) % 1.0 % (378) (116.7) %

Total other income (expense), net (1,013) 242 (518.6) % (2.5) % 0.8 % (1,058) 1,148 (192.2) % (0.9) % 1.1 %

Total other expense, net (460) 208 (1.0) % 0.6 % (668) *

Loss before income taxes (18,671) (7,732) (40.2) % (22.8) % (10,939) 141.5 %

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*Not meaningful

United States

Net sales in the United States for the three months ended September 30, 2021 were approximately $37.5 million, as compared to approximately $29.0 million in the same period in 2020.

The year-over-year increase of $8.5 million, or 29.4% was due to a $12.3 million, or 304.9%, increase in S&P sales driven by KushCo's September sales, which mitigated a decline in E-Commerce, Channel & Dropship and B2B sales of $0.3 million, or 10.0%, $0.6 million, or 14.7%, and $2.9 million or 16.5%, respectively.

For the nine months ended September 30, 2021, revenues in the United States increased by $14.4 million, or 17.4% to $96.9 million, compared to $82.5 million for the nine months ended September 30, 2020.

Core revenue for the United States for the three and nine months ended September 30, 2021 grew to $37.4 million and $102.4 million, from $28.0 million and $80.3 million for the same periods in 2020, representing increases of $9.4 million, or 33.6%, and $22.1 million or 27.5%.

The increase in core revenue was driven by our strategic shift away from low margin nicotine sales and increased emphasis on high margin product sales including Greenlane Brands.

In our United States segment, Greenlane Brands continue to perform well, with VIBES setting a quarterly sales revenue record for the 4th consecutive quarter, totaling $3.2 million and representing a $1.9 million or 158.2%, increase for Q3 2021 as compared to the same period in 2020.

Total Greenlane Brand revenue in the United States for the three and nine months ended September 30, 2021 was $8.2 million and $25.0 million as compared to $6.2 million and $18.2 million for the

three and nine months ended September 30, 2020, representing increases of $1.9 million, or 31.1%, and $6.8 million, or 37.6%, respectively.

Net sales in Canada for the three and nine months ended September 30, 2021 were approximately $1.0 million and $5.0 million, as compared to approximately $4.4 million and $12.4 million in the same periods in 2020, representing decreases of $3.5 million, or 77.9% and $7.4 million, or 59.9%.

The decrease in sales was driven by decreases in nicotine sales of $2.3 million, or 98.2%, and $5.1 million, or 86.1%, in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

This decrease in nicotine sales is part of our strategic shift away from low margin sales.

In the third quarter of 2021, we also incurred inventory shortages and a decrease in sales from the May ERP implementation which caused business disruptions throughout the quarter, including a shut-down in operations over a 10-day period in May.

As Canadian operations have since stabilized from the ERP implementation operational disruption, we expect a recovery in sales during Q4 2021.

Net sales in Europe for the three and nine months ended September 30, 2021 were approximately $2.8 million and $8.2 million, as compared to approximately $2.3 million and $7.2 million, respectively, over the same periods of 2020, representing increases of $0.5 million, or 21.3%, and $1.0 million, or 14.4%.

The third quarter increase was primarily due to the increase of third-party marketplace website sales of $0.3 million, or 388.8%, and a $0.2 million, or 21.5%, growth in our B2B sales.

For the third quarter of 2021, the growth in third-party marketplace website sales and B2B mitigated the $— million, or 4.3%, decrease in E-Commerce sales arising from web development issues, third-party marketplace sales cannibalization and increased market competition.

We continue to see growth in our Greenlane Brands overseas with European Greenlane Brand revenue for the three and nine months ended September 30, 2021 at $0.1 million and $0.3 million, compared to $0.1 million and $0.1 million, respectively, for the three and nine months ended September 30, 2020.

Consolidated Results of Operations

For the three months ended March 31, 2022, net sales were approximately $46.5 million, compared to approximately $34.0 million for the same period in 2021, representing an increase of $12.5 million, or 36.8%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed $28.4 million in net sales.

Excluding KushCo's post-merger sales, net sales declined 46.8% to $18.1 million for the three months ended March 31, 2022 compared to $34.0 million for the same period in 2021.

Although we aim to concentrate on Greenlane Brands, these sales decreased $3.1 million, or 34.0%, to $6.0 million for the three months ended March 31, 2022 from $9.0 million for the same period in 2021, driven largely by a decrease in third-party brand sales of 48.6% due to our strategy to focus on proprietary brands, and also interruptions due to our ERP implementation.

Cost of Sales and Gross Margin

Gross margin for the three months ended September 30, 2021 decreased by 6.6% as compared to the same period in 2020, totaling 0.3%, while merchandise margins remained relatively flat increasing by 0.4% to 29.6% due to the impact of the KushCo September revenue merchandise margins of 20.8%.

Excluding the impact of the KushCo September revenue, merchandise margins totaled 33.5%, representing a 4.3% increase driven by the aforementioned increase in Greenlane Brand sales.

On a year-to-date perspective, overall margin decreased by 2.5% , from 16.3% to 13.8% due to an increase in inventory adjustments driven by management's post-merger strategic product rationalization of $8.7 million.

Excluding said inventory rationalization adjustments, adjusted margin totaled 21.3%.

On a merchandise perspective, for the nine months ended September 30, 2021 margin totaled 31.5%, representing a 2.5% increase over the the nine months ended September 30, 2020.

Gross margin, or gross profit as a percentage of net sales, has been and will continue to be affected by a variety of factors, including the average mark-up over the cost of our products;

the mix of products sold;

purchasing efficiencies;

the level of sales for certain third-party brands, which carry contractual profit sharing obligations;

and the potential impact on freight costs arising from passing of the PACT Act amendment noted under Regulatory Developments.

Our products are sourced from suppliers who may use their own third-party manufacturers, and our product costs and gross margins may be impacted by the product mix we sell in any given period.

Furthermore, legacy Greenlane and legacy KushCo margins are significantly different, due to their respective customer bases, product mix and types of transactions.

Conversely, legacy Greenlane sales are comprised of business to business, retail and e-commerce sales that consist of a higher volume of transactions with lower average prices and higher margins.

For the three months ended March 31, 2022, cost of sales increased by $15.1 million, or 59.4%, as compared to the same period in 2021.

The increase in cost of sales was primarily due to the impact of the KushCo merger of $26.2 million, offset by a decrease in revenue of 46.8% excluding the impact of the KushCo merger.

Gross margin decreased to 12.8% for the three months ended March 31, 2022, compared to gross margin of 25.2% for the same period in 2021.

Excluding inventory write-offs of damaged and obsolete inventory for the three months ended March 31, 2022 and March 31, 2021 of $5.8 million and $1.0 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 2.9% to 25.3% for the three months ended March 31, 2022, compared to 28.1% for the same period in 2021.

The decrease in margin is related to an increase in lower margin KushCo-related sales of $28.4 million, and a 34.0% decrease in Greenlane Brands sales, which carry a higher margin profile than 3rd-party brand sales with a lower margin profile.

Salaries, Benefits and Payroll Taxes

For the three and nine months ended September 30, 2021, salaries, benefits and payroll taxes increased by approximately $6.2 or 123% and $5.4 million or 30.5% , as compared to the same period in 2020 primarily due to an increase in wages expense is largely driven by a post-merger stock compensation expense of $3.8 million due to the acceleration of vesting periods.

Salaries, benefits and payroll taxes expenses increased by approximately $3.7 million, or 57.9%, to $10.1 million for the three months ended March 31, 2022, compared to $6.4 million for the same period in 2021, primarily due to an increase related to the KushCo merger, an increase in severance of $0.6 million and an increase in stock compensation of $0.4 million, offset by a salaries and payroll taxes decrease related to a reduction in force we completed in March 2022, which we expect to result in approximately $8.0 million in annualized cash compensation cost savings.

This reduction in force is a part of our aforementioned 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability.

As we continue to closely monitor the evolving business landscape, including the impacts of COVID-19 on our customers, vendors, and overall business performance, we remain focused on identifying cost-saving opportunities while delivering on our strategy to recruit, train, promote and retain the most talented and success-driven personnel in the industry.

In light of the merger, m anagement is continuing to explore opportunities in 2021 to further reduce salary expenses and other operating expenses.

In light of the KushCo merger, management is continuing to explore opportunities in 2022 to further reduce salary and other operating expenses.

General and Administrative Expenses

For the three and nine months ended September 30, 2021, general and administrative expenses increased approximately $4.8 million, or 44.6%, and $5.1 million, or 19.9%, as compared to the same period in 2020.

The increases were primarily driven by (i) a $1.6 million increase in M&A legal and professional services related expenses and $2.9 million in directors and officers insurance expenses incurred with respect to the completed KushCo merger, (ii) a $0.5 million increase in IT subcontracted services associated with various system implementations.

General and administrative expenses increased by approximately $2.1 million, or 22.3%, for the three months ended March 31, 2022, compared to the same period in 2021.

This increase was primarily due to an increase of approximately $1.1 million in professional fees related to our ERP system implementation;

an increase of $0.3 million in insurance expense primarily driven by directors and officers insurance premiums increase;

an increase of $1.3 million related to the addition of KushCo facilities;

and $0.3 million in third party logistics fees related to the addition of a KushCo 3PL Canada facility;

an increase of $0.7 million in outbound shipping driven by an increase in sales contributed by the KushCo merger;

an increase in other G&A expense of $0.4 million;

offset by a decrease of $1.0 million in legal and accounting fees driven by decreased M&A activity and a $1.1 million decrease in bad debt expense with the majority related to a gain of $1.8 million due to indemnification asset recovery related to VAT liability offset by additional bad debt expense of $0.6 million.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $1.9 million, or 341.7%, for the three months ended March 31, 2022, compared to the same period in 2021.

The increase is primarily related to the additional depreciation and amortization expense related to assets acquired in conjunction with the KushCo merger, as well as the Eyce and DaVinci business acquisitions.

Other Income (Expense), Net

Other income (expense), net decreased by approximately $1.3 million for the three months ended September 30, 2021 as compared to the same period in 2020, primarily due to a revaluation of the Eyce contingent consideration of $0.6 million and a $0.3 million loss from the change in fair value of equity investments.

Interest expense.

Interest expense consists of interest incurred on our Real Estate Note, promissory notes related to the Eyce and DaVinci acquisitions, and Bridge loan.

We also experienced an increase of interest expense of approximately $0.3 million during the three months ended March 31, 2022, due to the addition of promissory notes related to the Eyce and DaVinci acquisitions and the Secured Promissory Note (the "Bridge Loan") with a related party during 2021.

Other expense, net.

Other income (expense), net, decreased by approximately $0.4 million for the three months ended March 31, 2022, compared to the same period in 2021.

The change is primarily due a loss related to the change in fair value of equity investment of $0.3 million.

Provision for (Benefit from) Income Taxes

As a result of the IPO and the related transactions (described further in "Note 1—Business Operations and Organizations" of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q), 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.

As a partnership, the Operating Company is not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by the Operating Company is passed through to, and included in the taxable income or loss of, its members, including us, in accordance with the terms of the Operating Agreement.

We are subject to federal income taxes, in addition to state and local income taxes with respect to our allocable share of the Operating Company’s taxable income or loss.

As discussed above, prior to the consummation of the IPO, the provision for income taxes included only income taxes on income from the Operating Company’s Canadian subsidiary, based upon an estimated annual effective tax rate of approximately 26.5%.

After the consummation of the IPO, Greenlane became subject to U.S.

federal, state and local income taxes with respect to Greenlane’s allocable share of the Operating Company’s taxable income or loss.

Furthermore, after completing the Conscious Wholesale acquisition in September 2019, the Operating Company became subject to Dutch income taxes on income from its Netherlands-based subsidiary, based upon an estimated effective tax rate of approximately 25.0%.

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 months ended March 31, 2022 and 2021, respectively, relates to taxes in foreign jurisdictions, including Canada and the Netherlands.

Segment Operating Performance

Following the completion of the KushCo merger in late August 2021, we reassessed our operating segments based on our new organizational structure.

Based on this assessment, we determined we had the following two operating segments beginning with the fourth quarter of 2021, which are the same as our reportable segments:

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

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

The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary 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 proprietary owned 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:

Three Months Ended March 31,

% of Total Net sales Change

2022 2021 2022 2021 $ %

Consumer Goods $ 17,141 $ 30,544 36.8 % 89.8 % $ (13,403) (43.9) %

Industrial Goods 29,393 3,465 63.2 % 10.2 % 25,928 748.3 %

Total net sales $ 46,534 $ 34,009

% of Segment Net sales Change

Cost of sales:

2022 2021 2022 2021 $ %

Consumer Goods $ 14,319 $ 22,934 83.5 % 75.1 % $ (8,615) (37.6) %

Industrial Goods 26,247 2,520 89.3 % 72.7 % 23,727 941.5 %

Total cost of sales $ 40,566 $ 25,454

Gross profit:

Consumer Goods $ 2,822 $ 7,610 16.5 % 24.9 % $ (4,788) (62.9) %

Industrial Goods 3,146 945 10.7 % 27.3 % 2,201 232.9 %

Total gross profit $ 5,968 $ 8,555

Consumer Goods

For the three months ended March 31, 2022, our Consumer Goods operating segment reported net sales of approximately $17.1 million compared to approximately $30.5 million for the same period in 2021, representing a decrease of $13.4 million or 43.9%.

The year-over-year decrease represented a $1.6 million or 23.6% decrease in Greenlane Brands sales and a $11.8 million or 38.8% decrease in third-party brand sales due to our strategy to focus on proprietary brands, and also interruptions due to our ERP implementation.

For the three months ended March 31, 2022, cost of sales decreased by $8.6 million, or 37.6%, as compared to the same period in 2021.

The decrease in cost of sales was primarily due to the 43.9% decrease in Consumer Goods net sales.

Gross margin decreased to 16.5% for the three months ended March 31, 2022, compared to gross margin of approximately 24.9% for the same period in 2021.

Excluding post-merger strategic product rationalization initiative charges of $1.9 million, gross margin was approximately 27.4% for the three months ended March 31, 2022, compared to gross margin of approximately 24.6%, excluding damaged and obsolete charges of $1.0 million, for the same period in 2021.

This increase was largely due to the decrease in lower margin third-party brand sales.

Industrial Goods

For the three months ended March 31, 2022, our Industrial Goods operating segment reported net sales of approximately $29.4 million compared to approximately $3.5 million for the same period in 2021, representing an increase of $25.9 million or 748.3%.

The increase is directly related to net sales of approximately $28.4 million contributed by our merger with KushCo, partially offset by a $1.5 million, or 61.6%, decrease in Pollen Gear revenue.

For the three months ended March 31, 2022, cost of sales increased by $23.7 million, or 941.5%, as compared to the same period in 2020.

The increase is directly related to cost of sales of approximately $26.2 million contributed by our merger with KushCo.

Gross margin was approximately 10.7% for the three months ended March 31, 2022, compared to gross margin of approximately 27.3% for the same period in 2021, representing 54.3% year over year decrease.

Excluding post-merger strategic product rationalization initiative charges of $3.8 million, gross margin was approximately 23.8% for the three months ended March 31, 2022, compared to gross margin of approximately 27.3% for the same period in 2021.

The year over year decrease in gross margin of approximately 1.7% is related to the sale of lower-margin KushCo-related products.

Net Sales by Geographic Regions

Three Months Ended March 31,

% of Net sales Change

2022 2021 2022 2021 $ %

United States $ 42,991 $ 28,667 92.4 % 84.3 % $ 14,324 50.0 %

Canada $ 1,855 $ 2,561 4.0 % 7.5 % (706) (27.6) %

Europe $ 1,688 $ 2,781 3.6 % 8.2 % (1,093) (39.3) %

Total net sales $ 46,534 $ 34,009 100.0 % 100.0 % $ 12,525 36.8 %

United States

For the three months ended March 31, 2022, our United States net sales were approximately $43.0 million, compared to approximately $28.7 million for the same period in 2021, representing an increase of $14.3 million, or 50.0%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed $28.4 million in total net sales.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $14.1 million, or 49.2%, to approximately $14.6 million for the three months ended March 31, 2022, compared to the same period in 2021.

The year-over-year decrease was primarily due to a decrease in wholesale revenue of $8.7 million, and a decrease in consumer retail revenue of $2.8 million.

For the three months ended March 31, 2022, our Canadian net sales were approximately $1.9 million, compared to approximately $2.6 million for the same period in 2021, representing a decrease of $0.7 million, or 27.6%.

The year-over-year decrease was primarily due to a $1.2 million decrease in wholesale revenue and a $0.8 million decrease in nicotine sales as part of our strategic shift away from low margin sales.

This was partially offset by $1.0 million in net sales contributed by KushCo.

For the three months ended March 31, 2022, our European net sales were approximately $1.7 million, compared to approximately $2.8 million for the same period in 2021, representing a decrease of $1.1 million or 39.3%.

This was primarily due to a $0.7 million, or 62.3%, decrease in third-party marketplace website sales and a $0.5 million, or 40.3%,, decrease in our B2B sales.

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and potential future acquisitions and general corporate needs.

Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations.

As of September 30, 2021, we had approximately $13.2 million of cash, of which $2.2 million was held in foreign bank accounts, and approximately $70.8 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $30.4 million of cash, of which $2.3 million was held in foreign bank accounts, and approximately $54.2 million of working capital as of December 31, 2020.

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.

Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs.

Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds from our ATM Program.

As of March 31, 2022, we had approximately $5.9 million of cash, of which $0.8 million was held in foreign bank accounts, and approximately $41.7 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $12.9 million of cash, of which $0.7 million was held in foreign bank accounts, and approximately $53.8 million of working capital as of December 31, 2021.

The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls;

however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal or other restrictions.

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% per annum, which is due monthly, and the principal amount is due in full in June 2022.

We are actively working to obtain financing to repay the Bridge Loan on or before its maturity date.

However, we can provide no assurances that we will be able to obtain financing on attractive terms or at all in order to be able to repay or refinance the Bridge Loan, and we may be required to issue equity at on unattractive terms and at dilutive prices in order to be able to repay the Bridge Loan.

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

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

However, we do not expect the covenants under any asset backed loan agreement to permit us to use the proceeds of such loan to refinance or repay the Bridge Loan.

If we are unable to repay or refinance the Bridge Loan, we may be unable to obtain an asset-backed loan until the co llateral securing the Bridge Loan has been released and the lenders of such asset-backed loan can obtain a first-lien security interest in such collateral.

On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries closed on the purchase of a building for $10.0 million, which serves as our corporate headquarters.

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

We are seeking to enter into a sale lease-back transaction with respect to our corporate headquarters, at which point we would repay the Real Estate Note, and use the net proceeds from the sale for working capital purposes.

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.

The Shelf Registration Statement registers shares of our Class A common stock, preferred stock, $0.0001 par value per share (the "preferred stock"), depository shares representing our preferred stock, warrants to purchase shares of our Class A common stock, preferred stock or depository shares, and rights to purchase shares of our Class A common stock or preferred stock that may be issued by us in a maximum aggregate amount of up to $200 million.

In August 2021, we filed a prospectus supplement and 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.

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

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

On March 31, 2022, the date on which our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") was filed with the SEC, the Shelf Registration Statement 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.

For so long as our public float is less than $75 million, the aggregate market value of securities sold by us under the Shelf Registration Statement (including our ATM Program) pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float.

Since the launch of the ATM program 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.

In light of our low cash position, we have been forced to sell stock under our ATM program at prices that may not otherwise be attractive and are dilutive.

We have offered $0.3 million in securities pursuant to Instruction I.B.6 in the twelve calendar months preceding the date of filing of this Quarterly Report on Form 10-Q.

Our future liquidity needs may also include payments in respect of the redemption rights of the Common Units held by its members that may be exercised from time to time (should we elect to exchange such Common Units for a cash payment), payments under the TRA and state and federal taxes to the extent not sheltered by our tax assets, including those arising as a result of purchases, redemptions or exchanges of Common Units for Class A common stock.

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provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA.

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

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.

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.

In addition, on August 11, 2021, we completed a public offering of 4,200,000 shares of Class A common stock, 5,926,583 pre-funded warrants to purchase shares of Class A common stock and 6,075,950 standard warrants to purchase shares of Class A common stock (the “Common Stock and Warrant Offering”) for net proceeds of approximately $29.9 million.

Our opinions concerning liquidity are based on currently available information.

To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of our Form 10-Q for the quarter ended June 30, 2021 and in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.

As of March 31, 2022, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2022 2021

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Net Cash Used in Operating Activities

During the nine months ended September 30, 2021, net cash used in operating activities of approximately $32.0 million consisted of (i) net loss of $42.3 million, offset by non-cash adjustments to net loss of approximately $7.1 million, including stock-based compensation expense of approximately $4.8 million, depreciation and amortization expense of approximately $2.4 million, and a reversal on the allowance of an indemnification receivable of approximately $1.7 million, and (ii) $3.2 million cash used in working capital primarily driven by decreases in accounts payable, accrued expenses and customer deposits of approximately $13.8 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $17.0 million, which included the collection of an indemnification asset of approximately $0.9 million, and the reduction of our VAT receivable balance upon the collection of a refund from the Dutch tax authorities of approximately $4.1 million.

During the nine months ended September 30, 2020 , net cash used in operating activities of approximately $3.8 million was a result of a net loss of $36.8 million offset by non-cash adjustments to net loss of approximately $14.2 million, including stock-based compensation expense of approximately $0.2 million, a loss related to an indemnification asset which was not probably of recovery of approximately $2.2 million, a goodwill impairment charge of $9.0 million, and a $18.9 million increase in cash generated by working capital primarily driven by increases in accounts payable, inventories, accrued expenses and decreases in other current assets and deferred offering costs.

During the three months ended March 31, 2022, net cash used in operating activities of approximately $12.0 million consisted of (i) net loss of $18.7 million, offset by non-cash adjustments to net loss of approximately $1.8 million, including stock-based compensation expense of approximately $0.9 million, depreciation and amortization expense of approximately $2.4 million, and an offsetting reversal on the allowance of an indemnification receivable of approximately $1.8 million, and (ii) a $4.9 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $9.5 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $4.6 million.

During the three months ended March 31, 2021, net cash used in operating activities of approximately $15.3 million consisted of (i) net loss of $7.7 million, offset by non-cash adjustments to net loss of approximately $0.6 million, including stock-based compensation expense of approximately $0.5 million, depreciation and amortization expense of approximately $0.5 million, and a reversal on the allowance of an indemnification receivable of approximately $0.6 million, and (ii) $8.1 million cash used in working capital primarily driven by decreases in accounts payable and accrued expenses of approximately $12.4 million, an increase in customer deposits of approximately $0.5 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $3.8 million.

Net Cash Used in Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities of approximately $14.3 million consisted of (i) approximately $12.3 million of cash used for the acquisition of Eyce and KushCo, net of cash acquired, (ii) $2.3 million for capital expenditures, including development costs for our new enterprise resource planning system, and (iii) $0.3 million of cash for the purchase of intangible assets, offset by proceeds from the sale of assets held for sale of approximately $0.7 million.

During the nine months ended September 30, 2020 , we used approximately $1.4 million of cash for capital expenditures, including computer hardware and software to support our growth and development and machinery to support the operations of our supply and packaging revenue stream.

Additionally, we used approximately $1.8 million for the acquisition of Conscious Wholesale, and $0.3 million of cash for the acquisition of intangible assets.

During the three months ended March 31, 2022, net cash used in investing activities of approximately $0.7 million largely consisted of capital expenditures, including development costs for our new enterprise resource planning system.

During the three months ended March 31, 2021, we used approximately $0.4 million of cash for capital expenditures, including development costs for our new enterprise resource planning system.

Additionally, we used approximately $2.4 million of cash for the acquisition of Eyce LLC.

Net Cash Provided by (Used in) Financing Activities

During the nine months ended September 30, 2021, net cash used in financing activities primarily consisted of cash proceeds of approximately $29.5 million from the issuance of Class A common stock in conjunction with our ATM Program and the Common Stock and Warrant Offering in August 2021 and cash proceeds of approximately $0.3 million from the exercise of stock options and warrants, offset by approximately $0.7 million in payments on other long-term liabilities, notes payable and finance lease obligations and $0.2 million in distributions.

During the nine months ended September 30, 2020 , net cash used in financing activities primarily consisted of approximately $0.3 million in payments on other long-term liabilities, notes payable and finance lease obligations.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

During the three months ended March 2022, net cash provided by financing activities of approximately $5.7 million primarily consisted of cash proceeds of approximately $6.8 million from the issuance of Class A common stock through our ATM Program, offset primarily by approximately $1.0 million in payments on notes payable, finance lease obligations and other long-term liabilities.

During the three months ended March 31, 2021, net cash used in financing activities primarily consisted of approximately $0.1 million in payments on notes payable, finance lease obligations, and other long-term liabilities.

Critical Accounting Policies and Estimates

See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Also see "Note 2 - Summary of Significant Accounting Policies" within Part I, Item 1 of this Form 10-Q for a discussion of the voluntary accounting principle change made during the quarterly period ended March 31, 2022.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosures about market risk from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" previously included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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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 2. Management’s Discussion and Analysis