Greenlane Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, 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 ("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. Examples of forward-looking statements include, without limitation : • the impacts of the novel coronavirus ("COVID-19") pandemic and measures intended to prevent or mitigate its spread, and our ability to accurately assess and predict such impacts on our results of operations, financial condition, acquisition and disposition activities, and growth opportunities; • statements regarding our growth and other strategies, results of operations or liquidity; • statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; • statements regarding our industry; • statements of management’s goals and objectives; • statements regarding laws, regulations, and policies relevant to our business; • projections of revenue, earnings, capital structure and other financial items; • assumptions underlying statements regarding us or our business; and • other similar expressions concerning matters that are not historical facts. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. 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 31 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; • our limited liquidity and our ability to successfully execute our strategic initiatives to improve our liquidity position; • 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; • our ability to access capital; • 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, including the current inflationary environment; • 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 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; and • 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. 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. Overview 32 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. In August 2021, we completed our transformational merger with KushCo, creating the leading ancillary cannabis company and house of brands. The combined company serves a diverse and expansive customer base with more than 8,500 retail locations, which includes many of the leading multi-state-operators and licensed producers, the top smoke shops in the United States, and millions of consumers globally. In addition to enhancing our financial size and scale, along with creating an optimized platform with significant potential revenue and cost saving synergies, the merger strengthened our best-in-class proprietary owned brands and exclusive third-party brand offerings. We have been developing a world-class portfolio of our own proprietary brands (the "Greenlane Brands") that we believe will, over time, deliver higher margins and create long-term value for our customers and shareholders. Our Greenlane Brands are comprised of child-resistant packaging innovator Pollen Gear; the Marley Natural accessory line; the K. Haring Glass Collection accessory line; Aerospaced grinders; Cookies lifestyle line; and Higher Standards, which is both an upscale product line and an innovative retail experience with a flagship store in New York City’s famed Chelsea Market. 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 also completed development of our newest product line, Groove, an expansive collection of reliable ancillary cannabis products officially launched in October of this year. At a more affordable price point, we are excited to attract a broader customer range with options for consumers of all budgets. 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 Storz & Bickel, Firefly, Santa Cruz Shredder, Cookies, and CCELL. 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 the U.S., Canada, and Europe. 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 Prevent All Cigarette Trafficking Act (the “PACT Act”). USPS PACT Act Exemption On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and had their supply chains disrupted by PACT Act compliance. On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls, processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers. Reverse Stock Split On August 4, 2022, we filed the Certificate of Amendment, which effected the Reverse Stock Split of our Common Stock at 5:01 PM Eastern Time on August 9, 2022. As a result of the Reverse Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the Reverse Split. 33 The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Split, as required by the terms of each security. The number of shares available to be awarded under the Equity Plan have also been appropriately adjusted. 2022 Plan On March 10, 2022, we announced our strategic plan (the “2022 Plan”) to reduce our cost structure, increase liquidity and accelerate our path to profitability. The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of our headquarters building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products and securing an asset-based loan that will support our working capital needs (with respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”). On June 22, 2022, we provided an update on the Liquidity Initiatives, which our management believes can generate more than $30.0 million of liquidity on a non-dilutive basis by the end of 2022 if all measures are successful. On July 19, 2022, Warehouse Goods entered into that certain Membership Interest Purchase Agreement and supporting documents to sell our 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash. Additionally, on August 9, 2022, we entered into an asset-based loan pursuant to that certain Loan and Security Agreement, dated as of August 8, 2022 (the “Loan Agreement”), by and among the Company, certain subsidiaries of the Company as guarantors, the parties thereto from time to time as lenders (the “Lenders”), and WhiteHawk Capital Partners LP, as the agent for the Lenders. As described in the Loan Agreement, the Lenders agreed to make available to us a term loan of up to $15.0 million on the terms and conditions set forth therein and the other Financing Agreements (as defined therein). Subsequently, on August 16, 2022, 1095 Broken Sound Pwky entered into a Purchase and Sale Agreement with a third-party whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including our headquarters building in Boca Raton, Florida for total consideration of $9.95 million, and on September 22, 2022 we closed on the sale. We expect to remain in our current headquarters space at 1095 Broken Sound Parkway, Suite 300 in Boca Raton, Florida through the end of November 2022, at which point we will transition our headquarters to Suite 100. Finally, we are working to sell our excess & obsolete (“E&O”) inventory of lower-margin, non-strategic products, along with reducing our overall level of inventory on hand. In May 2022, we commenced our official E&O sales program internally and have since sold more than $2.7 million of previously reserved E&O inventory. Our management anticipates that the proceeds from these E&O sales, combined with a general sell-down of other non-core third-party brand inventory, will generate more than $10.0 million in liquidity. 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. Notwithstanding the 2022 Plan, we were required to obtain additional capital through the sale of common stock and warrants in a public offering that closed in October 2022. See Note 9 — October 2022 Offering. This offering was completed in order to meet short term funding needs, and we are still seeking to execute our 2022 Plan and other liquidity initiatives. 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 nine months ended September 30, 2022 from $0.1 million, or 0.3% of total net sales for the same period in 2021. COVID-19 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. 34 Results of Operations The following table presents operating results for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, % of Net sales Change % of Net sales Change 2022 2021 2022 2021 $ % 2022 2021 2022 2021 $ % Net sales 28,680 41,314 100.0 % 100.0 % $ (12,634) (30.6) % 115,130 110,038 100.0 % 100.0 % $ 5,092 4.6 % Cost of sales 23,711 39,827 82.7 % 96.4 % (16,116) (40.5) % 96,094 90,943 83.5 % 82.6 % 5,151 5.7 % Gross profit 4,969 1,487 17.3 % 3.6 % 3,482 234.2 % 19,036 19,095 16.5 % 17.4 % (59) (0.3) % Operating expenses: Salaries, benefits and payroll taxes 7,000 11,192 24.4 % 27.1 % (4,192) (37.5) % 25,897 23,158 22.5 % 21.0 % 2,739 11.8 % General and administrative 8,547 16,795 29.8 % 40.7 % (8,248) (49.1) % 30,850 34,774 26.8 % 31.6 % (3,924) (11.3) % Goodwill and indefinite-lived intangibles impairment charge 66,760 — 232.8 % — % 66,760 66,760 — 58.0 % — % 66,760 — % Depreciation and amortization 2,124 1,199 7.4 % 2.9 % 925 77.1 % 6,876 2,385 6.0 % 2.2 % 4,491 188.3 % Total operating expenses 84,431 29,186 294.4 % 70.7 % 55,245 189.3 % 130,383 60,317 113.3 % 54.8 % 70,066 116.2 % Loss from operations (79,462) (27,699) (277.1) % (67.0) % (51,763) 186.9 % (111,347) (41,222) (96.8) % (37.5) % (70,125) 170.1 % Other income (expense), net: Interest expense (926) (119) (3.2) % (0.3) % (807) 678.2 % (1,598) (368) (1.4) % (0.3) % (1,230) 334.2 % Other income (expense), net 1,173 (894) 4.1 % (2.2) % 2,067 (231.2) % 562 (690) 0.5 % (0.6) % 1,252 (181.4) % Total other expense, net 247 (1,013) 0.9 % (2.5) % 1,260 * (1,036) (1,058) (0.9) % (1.0) % 22 * Loss before income taxes (79,215) (28,712) (276.2) % (69.6) % (50,503) 175.9 % (112,383) (42,280) (97.7) % (38.5) % (70,103) 165.8 % Provision for (benefit from) income taxes — 3 — % — % (3) (100.0) % 62 (11) 0.1 % — % 73 (663.6) % Net loss (79,215) (28,715) (276.2) % (69.6) % (50,500) 175.9 % (112,445) (42,269) (97.8) % (38.5) % (70,176) 166.0 % Net loss attributable to non-controlling interest (4,106) (12,434) (14.3) % (30.1) % 8,328 (67.0) % (9,880) (18,689) (34.4) % (17.0) % 8,809 (47.1) % Net loss attributable to Greenlane Holdings, Inc. $ (75,109) $ (16,281) (261.9) % (39.4) % $ (58,828) 361.3 % $ (102,565) $ (23,580) (63.4) % (21.4) % $ (78,985) 335.0 % *Not meaningful Consolidated Results of Operations Net Sales For the three months ended September 30, 2022, net sales were approximately $28.7 million, compared to approximately $41.3 million for the same period in 2021, representing a decrease of $12.6 million, or 30.6%. The decrease was partially offset by the merger with KushCo in August 2021, which contributed $20.1 million in net sales in 2022 compared to $12.6 million for prior year, which only included September 2021 activity. Excluding KushCo's post-merger sales, net sales decreased 70.2% to $8.6 million for the three months ended September 30, 2022 compared to $28.7 million for the same period in 2021. Third-party consumer brand sales decreased $14.3 million compared to the same period in 2021 due to our strategy to focus on proprietary brands and business strategy to move away from lower margin third-party consumer brand sales. Sales of Greenlane Brands decreased $3.6 million, or 54.7%, to $3.0 million for the three months ended September 30, 2022 from $6.6 million for the same period in 2021, driven largely by a decrease in Vibes due to the sale of Greenlane's interest in the business, a decrease in Eyce and Aerospaced sales, partially offset by an increase in DaVinci. For the nine months ended September 30, 2022, net sales were approximately $115.1 million, compared to approximately $110.0 million for the same period in 2021, representing an increase of $5.1 million or 4.6%. The increase was primarily due to the merger with KushCo in August 2021, which contributed $73.5 million in net sales in 2022 versus $12.6 million for prior year, which only included September 2021 activity.. Excluding KushCo's post-merger sales, net sales declined 51% to $41.6 million for the nine months ended September 30, 2022 compared to $85.2 million for the same period in 2021. 35 The decrease year over year is related to Industrial Pollen Gear $5.4 million and consumer goods sales for Greenlane Brands $7.6 million and third-party brands decreasing $27.9 million as a whole. The Company is in process of implementing a business strategy to move away from lower margin third-party consumer brand sales and focus on Greenlane Brands with higher margins. Revenue was negatively impacted by Greenlane's selling it's interest in the Vibes business during the current quarter. Sales were adversely impacted by ERP implementation efforts and the introduction of new CRM and B2B systems. Cost of Sales and Gross Margin For the three months ended September 30, 2022, cost of sales decreased by $16.1 million, or 40.5%, as compared to the same period in 2021. The decrease in cost of sales was attributable to a decrease in revenue. Gross margin increased to 17.3% for the three months ended September 30, 2022, compared to gross margin of 3.6% for the same period in 2021. Excluding write-offs of damaged and obsolete inventory for the three months ended September 30, 2022 and 2021 of $1.0 million and $7.6 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the three months ended September 30, 2022, compared to 22.0% for the same period in 2021. The increase in margin is related to a 71.9% decline in third-party brand sales, which carry a lower margin profile. For the nine months ended September 30, 2022 cost of sales increased by $5.2 million, or 5.7%, as compared to the same period in 2021. The increase is related to the increase in sales year over year of 4.6%. Gross margin decreased to 16.5% for the nine months ended September 30, 2022, compared to gross margin of 17.4% for the same period in 2021. Excluding inventory write-offs of damaged and obsolete inventory for the nine months ended September 30, 2022 and 2021, respectively, of $7.8 million and $7.6 million respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the nine months ended September 30, 2022, compared to 22.0% for the same period in 2021. Excluding damaged and obsolete negative impact margins remained relatively flat year over year. Salaries, Benefits and Payroll Taxes Salaries, benefits and payroll taxes expenses decreased by approximately $4.2 million, or 37.5%, to $7.0 million for the three months ended September 30, 2022, compared to $11.2 million for the same period in 2021, primarily due to a decrease in stock compensation of $3.4 million related to the acceleration of vesting options due to the KushCo merger. Salaries, benefits and payroll taxes expenses increased by approximately $2.7 million or 11.8% , to $25.9 million for the the nine months ended September 30, 2022, compared to $23.2 million for the same period in 2021, primarily due to an increase related to the KushCo merger, partially offset by a $2.7 million decrease in stock compensation. As we continue to closely monitor the evolving business landscape, including the impacts of COVID-19 and the regulatory and macro environment on our customers, vendors, and overall business performance, we remain committed to right-sizing our organization and introducing digital solutions while delivering on our strategy to recruit, train, promote and retain the most talented and success-driven personnel in the industry. General and Administrative Expenses General and administrative expenses decreased by approximately $8.2 million, or 49.1%, for the three months ended September 30, 2022, compared to the same period in 2021. This decrease was primarily due to an decrease of approximately $5.0 million in marketing expense, $1.3 million in professional fees and $1.8 million in prepaid inventory write-off for the prior year. Also contributing to the decrease was the gain on the sale of the Vibes business interest $2.1 million, Boca Florida real estate sale $0.8M offset by an increase in bad debt expense of $0.8 million year over year and fixed asset sale loss of $0.7 million. General and administrative expenses decreased by approximately $3.9 million or 11.3%, for the nine months ended September 30, 2022, compared to the same period in 2021. This decrease was primarily due to a $3.5 million reduction in professional fees related to the KushCo merger. Additionally, merchant fees decreased $1.3 million due to a decline in consumer revenue, insurance decreased $1.3 million due to a one-time D&O insurance payment related to the KushCo merger in the prior year, marketing expenses decreased $0.6 million, and restructuring expenses decreased $0.6 million. These declines were partially offset by a $2.2 million increase in bad debt, $1.9 million increase in facilities, and $0.8 million increase in outbound shipping driven by the KushCo merger. Also contributing to the decrease was the gain on the sale of the Vibes business interest of $2.1 million, and then Boca Raton, Florida real estate sale of $0.8M offset by a loss of $0.7 million related to a fixed asset sale. Goodwill and Indefinite-Lived Intangibles Impairment Charge 36 We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the three months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021. This impairment charge was due to declining business and declining enterprise value. We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the nine months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021. This impairment charge was due to declining business and declining enterprise value. Depreciation and Amortization Expense Depreciation and amortization expense increased $0.9 million, or 77.1%, for the nine months ended September 30, 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, the Eyce and DaVinci business acquisitions, and the ERP implementation. Depreciation and amortization expense increased $4.5 million, or 188.3%, for the nine months ended September 30, 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, the Eyce and DaVinci business acquisitions, and the ERP implementation. Other Income (Expense), Net Interest expense. Interest expense increased approximately $0.8 million during the three months ended September 30, 2022. The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition. Interest expense decreased approximately $1.2 million during the nine months ended September 30, 2022. The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition. Other expense, net. Other income (expense), net, expense increased by approximately $2.1 million million for the three months ended September 30, 2022, compared to the same period in 2021. The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition. Other income (expense), net, expense increased by approximately $1.3 million for the nine months ended September 30, 2022, compared to the same period in 2021. The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition. Provision for (Benefit from) Income Taxes As a result of the IPO and the related transactions completed in April 2019 (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 generally not subject to U.S. federal and certain state and local income taxes, however, certain states in which the Operating Company does business impose state composite and/or withholding 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 Greenlane, on a pro-rata basis, in accordance with the terms of the Operating Agreement. The Operating Company is also subject to taxes in foreign jurisdictions. We are a corporation subject to U.S. federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income. For the three and nine months ended September 30, 2022 and 2021, respectively, 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. income tax purposes, the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the valuation allowance against the deferred tax asset. 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 37 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 MSOs 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 and nine months ended September 30, 2022 and 2021, respectively: Three Months Ended September 30, Nine Months Ended September 30, % of Total Net sales Change % of Total Net sales Change 2022 2021 2022 2021 $ % 2022 2021 2022 2021 $ % Net sales: Consumer Goods $ 8,565 $ 24,724 29.9 % 59.8 % $ (16,159) (65.4) % $ 41,617 $ 85,232 36.1 % 77.5 % $ (43,615) (51.2) % Industrial Goods 20,115 16,590 70.1 % 40.2 % 3,525 21.2 % 73,513 24,806 63.9 % 22.5 % 48,707 196.4 % Total net sales $ 28,680 $ 41,314 $ 115,130 $ 110,038 % of Segment Net sales Change % of Segment Net sales Change Cost of sales: 2022 2021 2022 2021 $ % 2022 2021 2022 2021 $ % Consumer Goods $ 7,937 $ 23,213 92.7 % 93.9 % $ (15,276) (65.8) % $ 35,104 $ 68,766 84.4 % 80.7 % $ (33,662) (49.0) % Industrial Goods 15,774 16,614 78.4 % 100.1 % (840) (5.1) % 60,990 22,177 83.0 % 89.4 % 38,813 175.0 % Total cost of sales $ 23,711 $ 39,827 $ 96,094 $ 90,943 Gross profit: Consumer Goods $ 628 $ 1,511 7.3 % 6.1 % $ (883) (58.4) % $ 6,513 $ 16,466 15.6 % 19.3 % $ (9,953) (60.4) % Industrial Goods 4,341 (24) 21.6 % (0.1) % 4,365 (18187.5) % 12,523 2,629 17.0 % 10.6 % 9,894 376.3 % Total gross profit $ 4,969 $ 1,487 $ 19,036 $ 19,095 Consumer Goods For the three months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $8.6 million compared to approximately $24.7 million for the same period in 2021, representing a decrease of $16.2 million or 65.4%. The year-over-year decrease represented a $5.6 million or 63.2% decrease in Greenlane Brands sales and a $14.3 million or 71.9% decrease in consumer third-party brand sales due to our strategy to focus on proprietary brands with higher margins. The company has also sold Greenlane's interest in the Vibes business impacting sales negatively. For the nine months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $41.6 million compared to approximately $85.2 million for the same period in 2021, representing a decrease of $43.6 million or 51.2%. The year-over-year decrease is driven by a decrease in third-party and Greenlane brand sales. The company has also sold Greenlane's interest in the Vibes business impacting sales negatively. For the three months ended September 30, 2022, cost of sales decreased by $15.3 million, or 65.8%, as compared to the same period in 2021. The decrease in cost of sales was primarily due to the $16.2 million aforementioned sales decrease of 65.4%. For the nine months ended September 30, 2022, cost of sales decreased by $33.7 million or 49.0% , as compared to the same period in 2021. The decrease in cost of sales was primarily due to a $43.6 million or 51.2% decrease in sales compared to the same period in 2021. 38 Gross margin increased 1.2% to 7.3% for the three months ended September 30, 2022, compared to gross margin of approximately 6.1% for the same period in 2021. The low margins in both years are related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives. Excluding these D&O charges of $0.8 million, gross margin was approximately 17.0% for the three months ended September 30, 2022, compared to gross margin of approximately 23.5% for the same period in 2021 which incurred $4.3 million of D&O write-offs. Gross margin decreased 3.7% to 15.6% for the nine months ended September 30, 2022, compared to gross margin of approximately 19.3% for the same period in 2021. The decrease is related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives. Excluding these D&O charges of $3.4 million, gross margin was approximately 23.7% for the nine months ended September 30, 2022, compared to gross margin of approximately 25.8% for the same period in 2021 which incurred $5.5 million of D&O write-offs. Industrial Goods For the three months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $20.1 million compared to approximately $16.6 million for the same period in 2021, representing an increase of $3.5 million or 21.2%. The increase is directly related to net sales resulting from our merger with KushCo in August 2021. For the nine months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $73.5 million compared to approximately $24.8 million for the same period in 2021, representing an increase of $48.7 million or 196.4%. The increase is directly related to the net sales resulting from our merger with KushCo in August 2021. For the three months ended September 30, 2022, cost of sales decreased by $0.8 million, or 5.1%, as compared to the same period in 2021, due to the increase in sales. For the nine months ended September 30, 2022, cost of sales increased by $38.8 million or 175.0%, as compared to the same period in 2021, due to the increase in sales year-over-year. Gross margin was approximately 21.6% for the three months ended September 30, 2022, compared to gross margin of approximately (0.1)% for the same period in 2021, representing a 15017.7% year-over-year increase. Excluding post-merger strategic product rationalization initiative charges of $0.2 million, gross margin was approximately 22.4% for the three months ended September 30, 2022, compared to gross margin of approximately 17.8% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million. The year over year increase in gross margin of approximately 4.6% is related to the sale of higher-margin KushCo related products. Gross margin was approximately 17.0% million for the nine months ended September 30, 2022, compared to gross margin of approximately 10.6% for the same period in 2021, representing a 60.7% year-over-year increase. Excluding post-merger strategic product rationalization initiative charges of $4.7 million, gross margin was approximately 23.4% for the nine months ended September 30, 2022, compared to gross margin of approximately 22.6% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million. The year-over-year increase in gross margin of approximately 0.8% is related to the sale of higher-margin KushCo related products. Net Sales by Geographic Regions Three Months Ended September 30, Nine Months Ended September 30, % of Net sales Change % of Net sales Change 2022 2021 2022 2021 $ % 2022 2021 2022 2021 $ % Net sales: United States $ 25,801 $ 37,501 90.0 % 90.8 % $ (11,700) (31.2) % $ 106,407 $ 96,862 92.4 % 88.0 % $ 9,545 9.9 % Canada 1,543 982 5.4 % 2.4 % 561 57.1 % 4,273 4,955 3.7 % 4.5 % (682) (13.8) % Europe 1,336 2,831 4.7 % 6.8 % (1,495) (52.8) % 4,464 8,221 3.9 % 7.5 % (3,757) (45.7) % Total net sales $ 28,680 $ 41,314 100.1 % 100.0 % $ (12,634) (30.6) % $ 115,144 $ 110,038 100.0 % 100.0 % $ 5,106 4.6 % United States For the three months ended September 30, 2022, our United States net sales were approximately $25.8 million, compared to approximately $37.5 million for the same period in 2021, representing a decrease of $11.7 million, or 31.2%. The year-over-year decrease was primarily reduced by the impact of the KushCo merger, which contributed $20.1 million in total net sales. Excluding net sales contributed by KushCo, total net sales decreased by approximately $20.1 million, or 70.2%, to approximately $8.6 million for the three months ended September 30, 2022, compared to the same period in 2021. The year- 39 over-year decrease was principally due to a decrease in wholesale revenue of $10.0 million, and a decrease in consumer retail and marketplace revenue of $4.2 million. For the nine months ended September 30, 2022, our United States net sales were approximately $106.4 million, compared to approximately $96.9 million for the same period in 2021, representing an increase of $9.5 million, or 9.9%. The year-over-year increase was primarily due to the merger with KushCo, which contributed $70.9 million in total net sales. Excluding net sales contributed by KushCo, total net sales decreased by approximately $37.5 million, or 106.6%, to approximately $35.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. The decrease was driven by a decrease in wholesale revenue and consumer marketplace and e-commerce business. Canada For the three months ended September 30, 2022, our Canadian net sales were approximately $1.5 million, compared to approximately $1.0 million for the same period in 2021, representing an increase of $0.6 million, or 57.1%. The year-over-year increase was primarily due to the merger with KushCo, which contributed in total net sales. This was partially offset by a $0.4 million decrease in consumer revenue. For the nine months ended September 30, 2022, our Canadian net sales were approximately $4.3 million, compared to approximately $5.0 million for the same period in 2021, representing a decrease of $0.7 million, or 13.8%. The year-over-year decrease was primarily due to a decrease in wholesale revenue offset by incremental sales contributed by KushCo. Europe For the three months ended September 30, 2022, our European net sales were approximately $1.3 million, compared to approximately $2.8 million for the same period in 2021, representing a decrease of $1.5 million or 52.8%. This was primarily due to a $0.9 million, or 65.2%, decrease in our e-commerce sales. For the nine months ended September 30, 2022, our European net sales were approximately $4.5 million, compared to approximately $8.2 million for the same period in 2021, representing a decrease of $3.8 million, or 45.7%. This was primarily due to a decrease in wholesale sales. Liquidity and Capital Resources We believe that our cash on hand 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 other equity issuances such as our June 2022 and August 2022 offerings. As of September 30, 2022, 2022, we had approximately $8.0 million of cash, of which $1.0 million was held in foreign bank accounts, and approximately $39.4 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. On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”), in a registered direct offering (the “June 2022 Offering”). The shares of Class A common stock and June 2022 Warrants were sold in Units (the “June 2022 Units”), with each unit consisting of one share of Class A common stock or a June 2022 Pre-Funded Warrant and a June 2022 Standard Warrant to purchase one share of our Class A common stock. The June 2022 Units were offered by the Company pursuant to the Shelf Registration Statement. Subject to certain ownership limitations, the June 2022 Standard Warrants are exercisable for five years from the six-month anniversary of issuance at an exercise price equal to $5.00 per share of Class A common stock. Each June 2022 Pre-Funded Warrant was exercisable for one share of Class A common stock at an exercise price of $0.002. The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million. All June 2022 Pre-Funded Warrants were exercised in July 2022, based upon which we issued an additional 495,000 shares of our Class A common stock, for de minimis net proceeds. On March 10, 2022, we announced the 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability. The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of our headquarters building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products and securing an asset-based loan that will support our working capital needs (with 40 respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”). Please see "Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Overview — 2022 Plan" for more information. On July 19, 2022, we entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into the Loan Agreement whereby the Lenders agreed to make available to the Company a term loan of up to $15.0 million. 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. The purchase was financed through a real estate term note (the “Real Estate Note”) in the principal amount of $8.5 million, with one of the Operating Company’s wholly-owned subsidiaries as the borrower and Fifth Third Bank as the lender. Principal amounts plus any accrued interest at a rate of LIBOR plus 2.39% are due monthly. Our obligations under the Real Estate Note are secured by a mortgage on the property. On September 22, 2022 (the “Closing Date”), 1095 Broken Sound consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound and ASC Capital LLC (the “Purchaser”) whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our headquarters building to the Purchaser for total consideration of $9.95 million in cash (collectively, the “HQ Transaction”). On the Closing Date, the Company used the proceeds from the HQ Transaction to repay the remainder of the Real Estate Note in full. The remaining proceeds will be used for general corporate purposes. On July 19, 2022, Warehouse Goods LLC ("Warehouse Goods"), a wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement and supporting documents (collectively, the “Sale Agreement”), to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which makes available to the Company a term loan of up to $15.0 million. On October 13, 2022, we entered into the Settlement Agreement with the Vendor for the repayment of the Remaining Liabilities due to the Vendor relating to previously purchased inventory. As previously disclosed and in connection with the our ongoing discussions with the Vendor, on July 18, 2022, we paid $1.0 million of the approximately $6.0 million balance due to the Vendor in cash and during the period of July 26, 2022 through July 31, 2022, returned approximately $1.1 million in inventory to the Vendor, which was accepted by the Vendor and was credited against the remaining outstanding balance owed by us to the Vendor. The Settlement Agreement provides for a payment plan pursuant to which the we have agreed to repay the Remaining Liabilities in weekly installments commencing on October 14, 2022. Pursuant to the terms of the Settlement Agreement, the Remaining Liabilities will be repaid in full on December 9, 2022. On October 24, 2022, Warehouse Goods sold 38,839 shares of High Tide common stock for total consideration of approximately $0.05 million. On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, 1,377,780 October 2022 Pre-Funded Warrants and 16,666,670 October 2022 Standard Warrants. Each October 2022 Unit consisted of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 Units were offered pursuant to the S-1 Registration Statement. The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. For more information regarding the October 2022 Offering, please see "Note 13 - Subsequent Events." On November 3, 2022, Merger Sub Gotham 2 sold its interest in XS Financial to certain purchasers for total consideration of approximately $0.65 million, minus certain fees. On the same day, we also entered into the Lease Termination Agreement, which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California. Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.46 million as an early termination fee in consideration for the Landlord's agreement to terminate all of our remaining obligations under the Cypress lease. We expect the Lease Termination to result in approximately $1.7 million in savings, although we can provide no assurances as to the total amount of savings realized from the Lease Termination. 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 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. 41 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 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 in August 2021 and through September 30, 2022, we sold 972,624 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $12.7 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 $6.8 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. Following the completion of the June 2022 Offering we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the restrictions under Instruction I.B.6 to Form S-3, which will limit our liquidity options in the capital markets. 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. Although the actual timing and amount of any payments that may be made under the TRA will vary, the payments that we will be required to make to the members may be significant. Any payments made by us to the members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to the Operating Company and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; 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. 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 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 September 30, 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. Cash Flows 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, (in thousands) 2022 2021 Net cash used in operating activities $ (22,488) $ (32,028) Net cash provided by (used in) investing activities 12,500 (14,256) Net cash provided by financing activities 7,535 28,871 Net Cash Used in Operating Activities During the nine months ended September 30, 2022, net cash used in operating activities of approximately $22.5 million consisted of (i) net loss of $112.4 million, offset by non-cash adjustments to net loss of approximately $74.3 million, and (ii) a $15.7 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $9.9 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $25.6 million. 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, and (ii) $2.2 million cash used in working capital primarily driven by decreases in accounts payable and accrued expenses of approximately $13.7 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $11.5 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. Net Cash Provided by (Used in) Investing Activities 42 During the nine months ended September 30, 2022, net cash provided by investing activities of approximately $12.5 million largely consisted of proceeds from the same of assets held for sale of $9.6 million and proceeds from the sales of our interests in VIBES of $4.6 million, offset by cash used for development costs for our new enterprise resource planning (ERP) system of $1.7 million. 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. Net Cash Provided by Financing Activities During the nine months ended September 30, 2022, net cash provided by financing activities of approximately $7.5 million primarily consisted of cash proceeds of approximately $14.1 million from the issuance of Class A common stock through our ATM Program and the June 2022 Offering, offset primarily by approximately $2.8 million in payments on notes payable, finance lease obligations and other long-term liabilities, and approximately $0.9 million in payments of contingent consideration related to the Eyce LLC acquisition. During the nine months ended September 30, 2021, net cash used in financing activities primarily consisted of approximately $0.2 million in payments on other long-term liabilities, notes payable and finance lease obligations, $0.2 million in member distributions, offset by $0.1 million of cash proceeds from the exercise of stock options. 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 beginning with the quarterly period ended March 31, 2022. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required.