What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-31 · 177 added, 154 removed, 138 unchanged (71% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Founded in 2005, Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, vape devices, and lifestyle products.

In 2021, we completed several transformative acquisitions including the acquisition of two proprietary house brands, EYCE (“Eyce”) and DaVinci (“DaVinci”), along with a larger merger with KushCo Holdings, adding a significant industrial line of business to the Greenlane platform.

These acquisitions strengthened our leading position as a consumer ancillary products house-of-brands business by adding two established brands to our portfolio (Eyce and DaVinci), and significantly expanded our customer network, bringing strategic relationships with leading cannabis multi-state-operators (“MSOs”), cannabis single-state operators (“SSOs”), and Canadian licensed-producers (“LPs”).

Greenlane is a leading ancillary cannabis company, providing a wide array of consumer ancillary products and industrial ancillary products to thousands of cannabis producers, processors, brands, and retailers (“Cannabis Operators”), in addition to specialty retailers, smoke shops and head shops, convenience stores, and consumers directly through our own proprietary web stores and large online marketplaces such as Amazon.

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;

VIBES rolling papers;

the Marley Natural accessory line;

Haring Glass Collection accessory line;

Aerospaced & Groove grinders;

Cookies lifestyle line;

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, the November acquisition of substantially all of the assets of Organicix LLC dba DaVinci Tech.

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, Santa Cruz Shredder, Cookies, and CCELL.

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

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

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.

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.

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 and booster shots, and the overall impact on our customers, employees, vendors, and operations.

Discontinuation of Nicotine Sales

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 $2.1 million, or 1.3% of total net sales, from $13.0 million, or 9.4% of total net sales.

Meanwhile, Greenlane Brand sales increased 52.3% to $34.8 million for the year ended December 31, 2021, driven by strong growth in sales from Eyce and VIBES products.

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

Our wholly-owned Greenlane Brands includes our recently launched a more affordable product line – Groove, innovative silicone pipes and accessories – Eyce, best-in-class premium vaporizer brand – DaVinci, premium smoke shop and ancillary product brand – Higher Standards, child-resistant packaging brand - Pollen Gear.

We also have category exclusive licenses for the premium Marley Natural branded products, as well as the K.Haring Glass Collection.

The Greenlane Brands, along with a curated set of third-party products, are offered to customers through our proprietary, owned and operated e-commerce platforms which include Vapor.com, Vaposhop.com, DaVinciVaporizer.com, PuffItUp.com, HigherStandards.com, EyceMolds.com, and MarleyNaturalShop.com.

These platforms allow us to reach customers directly with helpful resources and a seamless purchasing experience.

We merchandise vaporizers, packaging, and other ancillary products in the United States, Canada, Europe and Latin America.

We distribute products to retailers through wholesale operations and distribute products to consumers through e-commerce activities and our flagship Higher Standards store in New York City's famed Chelsea Market.

We operate our own distribution centers in the United States, while also utilizing third-party logistics ("3PL") locations in the United States, Canada, and Europe.

We have made tremendous progress consolidating and streamlining our warehouse and distribution operations following our acquisitions in 2021, and we look forward to further optimization of our footprint in 2023.

We manage our business in two different, but complementary, business segments.

The first is the Consumer Goods segment, which focuses on serving consumers across wholesale, retail, and e-commerce operations—offering both our Greenlane Brands as well as ancillary products and accessories from select leading third-party brands, such as Storz and Bickel, Grenco Science, PAX, Cookies and more.

The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands.

In addition to our Consumer Goods segment, we have our Industrial Goods segment, which focuses on serving Cannabis Operators by providing ancillary products essential to their daily operations and growth, such as packaging and vaporization solutions, including our Greenlane Brand Pollen Gear.

Refer to "Note 11— Segment Reporting" within Item 8 to this Annual Report on Form 10-K for additional information on our reportable segments.

Plan to Accelerate Path to Profitability and Capitalize the Business

In today’s economic environment, not to mention the environment of the cannabis industry itself, the key focus for many companies is profitability.

At Greenlane, we are hyper focused on getting our business profitable and well-capitalized for long-term sustainability.

We have announced numerous facility closures (both warehouse and office) throughout 2022.

The results of those efforts should be fully materialized in 2023.

In addition, we have substantially reduced our headcount and associated salary and wages expenses.

We have been working hard to right-size our business, focus on core areas, and reduce our overall cost structure while improving our margins in an effort to be profitable in 2023.

On June 22, 2022, we provided an update on the Liquidity Initiatives, which our management believed could generate more than $30.0 million of liquidity on a non-dilutive basis by the end of 2022 if all measures were 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.

In 2022, we announced our plans to divest our packaging division which should bring in meaningful working capital and allow for substantial cost-reductions.

The divestiture should allow us to further consolidate our warehouse footprint into one U.S.

warehouse for our Consumer Goods and remaining Industrial Goods.

This initiative, combined with restructuring

some of our other initiatives, should allow us to reduce our overall cost-structure to a sustainable point, and in combination, convert millions of dollars of inventory back into working capital, thereby significantly improving our balance sheet.

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 $4.1 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 our strategic initiatives 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 and Liquidity Initiatives, we were required to obtain additional capital through the sale of common stock and warrants in a public offering that closed in October 2022 and filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in February 2023 seeking to register the offering of up to $8 million in units, which has not yet become effective.

See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

The October 2022 offering was completed and the February 2023 Form S-1 was filed, in order to meet short term funding needs, and we are still seeking to execute our strategic and other liquidity initiatives.

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 a Certificate of Amendment (the “Certificate of Amendment”) to our amended and restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Class A common stock and Class B common stock (collectively, the “Common Stock”) at 5:01 PM Eastern Time on August 9, 2022.

As a result of the Reverse Stock 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 Stock Split.

The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock.

All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Split, as required by the terms of each security.

The number of shares available to be awarded under our Second Amended and Restated 2019 Equity Incentive Plan have also been appropriately adjusted.

See "Note 10 — Compensation Plans" for more information.

All share and per share amounts in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.

Critical Accounting Policies and Estimates

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Judgment is also required in determining the assumptions and estimates used when calculating the fair value of the reporting unit or the indefinite-lived intangible asset.

Due to declines in the Company's stock price as well as changes to our estimates and assumptions of the expected future cash flows, we recorded impairment charges of approximately $71.4 million related to goodwill and indefinite-lived intangibles during the year ended December 31, 2022.

For additional information about goodwill and intangible assets, see "Note 3—Business Acquisitions" and "Note 8—Supplemental Financial Statement Information" of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Income Taxes and TRA Liability

We are subject to U.S.

federal, state and foreign income taxes with respect to our allocable share of any taxable income or loss of Greenlane Holdings, LLC and will be taxed at the prevailing corporate tax rates on such income.

Significant judgment is required in determining our provision or benefit for income taxes and in evaluating uncertain tax positions.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets or deferred tax liabilities for the expected future tax consequences of events included in our financial statements.

Greenlane Holdings, LLC is a limited liability company and is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a result, we are not liable for U.S.

federal or state and local income taxes in most jurisdictions in which we operate, and the income, expenses, gains and losses are reported on the returns of our members.

Greenlane Holdings, LLC is subject to Canadian, Dutch, and U.S.

state and local income tax in certain jurisdictions in which it is not treated as a partnership for income tax purposes, and in which jurisdictions it pays an immaterial amount of taxes.

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

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

We do not record U.S.

income taxes on the undistributed earnings of our foreign subsidiaries, except for the Canadian subsidiary, based upon our intention to permanently reinvest undistributed earnings to ensure sufficient working capital and

further expansion of existing operations outside the United States.

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

We are a corporation subject to income taxes in the United States.

Certain subsidiaries of the Operating Company are taxable separately from us.

Our proportional share of the Operating Company’s subsidiaries’ provisions are included in our consolidated financial statements.

As of December 31, 2022, we hold all the outstanding Common Units in the Operating Company and are the sole member.

As a result, starting in 2023, 100% of the Operating Company’s US and state income and expenses will be included in our US and state tax returns.

Our deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future.

We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income.

A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

If we determine we would be able to realize our deferred tax assets for which a valuation allowance had been recorded, then we would adjust the deferred tax asset valuation allowance, which would reduce our provision for income taxes.

Our deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible amounts in the future.

We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable income.

A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets

will not be realized.

We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions.

Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized is recognized.

Interest and penalties related to unrecognized tax benefits are recorded in income tax benefit.

We have no uncertain tax positions that qualify for inclusion in our consolidated financial statements.

In addition to tax expenses, we may incur expenses related to our operations and may be required to make payments under the Tax Receivable Agreement (the "TRA"), which could be significant.

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General and administrative 41,000 47,874 29.9 % 28.8 % (6,874) (14.4) %

Goodwill impairment charge — 8,996 — % 6.5 % (8,996) (100.0) %

Goodwill and indefinite-lived intangibles impairment charge 71,360 — 52.1 % — % 71,360 *

Depreciation and amortization 9,067 4,689 6.6 % 2.8 % 4,378 93.4 %

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Interest expense (2,450) (574) (1.8) % (0.3) % (1,876) 326.8 %

Other income (expense), net (117) 1,902 (0.1) % 1.4 % (2,019) (106.2) %

Employee retention credits 4,854 — 3.5 % — % 4,854 *

Other expense, net (541) (117) (0.4) % (0.1) % (424) 362.4 %

Total other expense, net 1,863 (691) 1.3 % (0.4) % 2,554 *

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Consolidated Results of Operations

For the year ended December 31, 2021, total net sales were approximately $166.1 million, compared to approximately $138.3 million for the year ended December 31, 2020, representing an increase of $27.8 million, or 20.1%.

The year-over-year increase was primarily due to the merger with KushCo, which was completed on August 31, 2021, and which contributed $43.5 million in total net sales.

The increase was partially offset by a $10.9 million decrease in sales of lower-margin third-party nicotine brands and a $7.2 million decrease in sales of other lower-margin third-party brands.

For the year ended December 31, 2022, total net sales were approximately $137.1 million, compared to approximately $166.1 million for the year ended December 31, 2021, representing a decrease of $29.0 million, or 17.4%.

The year-over-year decrease was primarily driven by a decrease in Consumer Goods segment of $62.0 million, or 56.3% decrease, offset by an increase in the Industrial segment of $33.0 million or 59.0% due to the net sales contributed by our merger with KushCo, which have been included in our results of operations since August 31, 2021, which is the merger completion date.

The decline in the Consumer Goods segment is due to a major restructuring effort by the company during fiscal year 2022 to reduce sales and marketing cost to align with revenue, sale of the Company's minority interest in Vibes brand and a shift in strategy to focus on in-house brands that have a higher margin profile and rationalized third-party brand offering generating top line revenue with lower margins.

Cost of Sales and Gross Margin

For the year ended December 31, 2021, cost of sales increased by $22.8 million, or 19.8%, as compared to the year ended December 31, 2020.

The increase in cost of sales was primarily due to the impact of the KushCo merger of $36.7 million, offset by a decrease in revenue of 11.4% excluding the impact of the KushCo merger.

Gross margin remained relatively flat at 16.7% for the year ended December 31, 2021, compared to gross margin of 16.5% for the same period in 2020.

Excluding inventory write-offs of damaged and obsolete inventory in 2021 and 2020 of $10.5 million and $6.7 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins increased 1.7% to 23.0% in 2021, compared to 21.3% for the same period in 2020.

The increase in margin is related to an increase in Greenlane Brands sales of 52.3% with a higher margin profile than 3rd-party brand sales with a lower margin profile for the comparable period.

For the year ended December 31, 2022, cost of sales decreased by $20.1 million, or 15.2%, as compared to the year ended December 31, 2021.

The decrease in cost of sales is aligned with the decrease in revenue of 17.4%.

Gross margin decreased by 2.2% to 18.2% for the year ended December 31, 2022, compared to gross margin of 20.4% for the same period in 2021.

The decrease in margin is due to the increased weight on margin from the Industrial segment that has a lower margin profile then the Consumer segment representing 65% of total revenue for fiscal year 2022 versus only representing 34% of total revenue for fiscal year 2021.

Excluding inventory write-offs of damaged and obsolete inventory in

2022 and 2021 of $9.6 million and $10.5 million gross margins decreased 1.5% to 25.2% in 2022, compared to 26.7% for the same period in 2021.

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;

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purchasing efficiencies;

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

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.

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.

Furthermore, Consumer Goods segment and Industrial segment margins are significantly different, due to their respective customer bases, product mix and types of transactions.

Industrial segment 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, Consumer Goods 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.

Salaries, Benefits and Payroll Taxes

Salaries, benefits and payroll taxes expenses increased by approximately $9.1 million, or 36.5%, to $34.0 million for the year ended December 31, 2021, compared to $24.9 million for the same period in 2020, primarily due to an increase related to the KushCo merger of $5.9 million and $5.7 million in stock compensation expense, the majority of which is related to post-merger acceleration of vesting periods triggered by the KushCo merger, offset by a salaries and payroll taxes decrease of $1.7 million related to a transformation initiative to reduce salary operating expense.

Salaries, benefits and payroll taxes expenses decreased by approximately $2.7 million, or 8.0% , to $31.3 million for the year ended December 31, 2022, compared to $34.0 million for the same period in 2021.

The decrease is related to a reduction in workforce of 49% throughout fiscal year 2022.

The Company reduced headcount from 308 employees as of December 31, 2021 to 157 employees as of December 31, 2022.

The decrease was offset by a full year of compensation expense related to the KushCo merger for fiscal year 2022 versus only four months of expense from the merger date of August 31, 2021 for fiscal year 2021.

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, management is continuing to explore opportunities in 2022 to further reduce salary expenses and other operating expenses.

As part of our aforementioned 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability, we completed a reduction in force in March 2022, which we expect to result in approximately $8.0 million in annualized cash compensation cost savings.

General and Administrative Expenses

General and administrative expenses increased by approximately $6.4 million, or 18.1%, for the year ended December 31, 2021 , compared to the same period in 2020.

This increase was primarily due to an increase of approximately $3.8 million in professional fees related to our ERP system implementation and M&A;

an increase of $3.3 million in insurance expense primarily driven by directors and officers insurance premiums incurred with respect to the completed KushCo merger, an increase of $2.4 million in legal fees driven by M&A activity, an increase of $1.2 million third party logistics full year costs versus partial year cost related to 3PL facilities in Kentucky and Canada first implemented in 2020 and the addition of KushCo 3PL Canada facility;

an increase in write-offs of $1.1 million principally related to vendor inventory deposits identified during a post-merger inventory rat ionalization initiative;

offset by a decrease of $6.6 million bad debt expense with the majority of the decrease related to gain of 1.7 million due indemnification asset recovery related to VAT liability versus a loss of approximately $4.5 million related to the same indemnification asset which was not probable of recovery for the same comparable period.

Impairment Charge

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

Based on this assessment, we concluded that the fair value of our Europe reporting unit exceeded its carrying value and no impairment charge was required.

However, the estimated fair value of the United States reporting unit was determined to be below its carrying value, which resulted in a $9.0 million goodwill impairment charge, recorded in the first quarter of 2020.

We did not recognize incremental impairment charges to goodwill as a result of our annual impairment assessment as of December 31, 2021 and 2020, respectively.

General and administrative expenses decreased by approximately $6.9 million , or 14.4% , for the year ended December 31, 2022 , compared to the same period in 2021.

This decrease was primarily due to a decrease of approximately $4.9 million in professional fees related to accounting, legal, general sub-contracting and M&A;

a decrease of $1.1 million in insurance expense, a decrease of $1.3 million in marketing expense, a decrease of $1.6 million in merchant credit card fees due to the decrease in revenue and a gain of $1.4 million related to the sale of assets primarily driven by the sale of the Company's 50% interest in the Vibes entity and the Company's headquarters in Boca Florida offset by some asset losses.

The decreases were offset by a one-time VAT liability gain recorded in 2021 of $1.7 million, bad debt expense increase of $1.1 million and increases in other G&A expenses of $0.7 million.

Goodwill and Indefinite-Lived Intangibles Impairment Charge

We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $71.4 million during the year ended December 31, 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 Expenses

Depreciation and amortization expense increased $4.4 million, or 93.4%, for the year ended December 31, 2022 , compared to the same period in 2021.

The increase of $2.2 million is primarily related to the additional depreciation and amortization expense related to the KushCo merger.

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 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 $0.1 million

during the year ended December 31, 2021, due to the addition of promissory notes related to the Eyce and DaVinci acquisitions and the Secured Promissory Note (the "Bridge Loan") with Aaron LoCascio during 2021.

Interest expense increased approximately $1.9 million during the fiscal year 2022 versus fiscal year 2021.

The increase is primarily related to the new Asset-Based Loan, Bridge Loan and the Eyce and DaVinci promissory notes.

Employee retention credits.

As of December 31, 2022, we had recorded an ERC receivable of $4.9 million within "Other current assets" on our consolidated balance sheets, and a corresponding amount was included in "Other income (expense), net" in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2022.

On February 16, 2023, two of Greenlane Holdings, Inc.’s subsidiaries, Warehouse Goods LLC and Kim International LLC (collectively, the “Company”),

entered into an agreement with a third-party institutional investor pursuant to which the investor purchased, for approximately $4.9 million in cash, an economic participation interest, at a discount, in all of the Company’s rights to payment from the United States Internal Revenue Service with respect to the employee retention credits filed by the Company under the Employee Retention Credit (“ERC”) program.

Other expense, net.

Other income (expense), net, decreased by approximately $2.0 million for the year ended December 31, 2021 , compared to the same period in 2020.

The change is primarily due a loss related to the revaluation of contingent consideration of $0.2 million in 2021, which was offset by a gain from the fair value adjustment of contingent consideration of approximately $0.7 million in 2020, which was largely attributed to changes in forecasted revenues and gross profits in our European operations over the remainder of 2021, driven primarily by the impacts of the COVID-19 pandemic, and a decrease in interest income in 2021 of $0.2 million, as well as general other expenses incurred in 2021.

Provision for Income Taxes

As a result of the IPO and the related transactions (defined in "Note 1—Business Operations and Organizations" of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K), 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%.

During the third quarter of 2019, management performed an assessment of our ability to realize our deferred tax assets based upon which management determined that it is not more likely than not that our 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, thus reducing the carrying balance to $0.

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.

Other expense, net, increased by approximately $0.4 million for the year ended 2022 primarily due to changes in the fair value of contingent consideration and other losses, compared to the same period in 2021.

Segment Operating Performance

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These changes in operating segments align with how we manage our business as of the fourth quarter of 2022.

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 focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary brands, including Eyce, DaVinci, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like Storz and Bickel, Grenco Science, and many more.

The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands.

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For the year ended December 31, 2022, our Consumer Goods operating segment reported net sales of approximately $48.1 million compared to approximately $110.1 million for the same period in 2021, representing a decrease of $62.0 million or 56.3%.

The year-over-year decrease was primarily due to a $10.9 million decrease in sales of lower-margin third-party nicotine brands.

The decrease was also due, to a lesser extent, to a $7.2 million decrease in sales of other lower-margin third-party brands.

The decrease was offset by a $11.9 million increase in the sales of Greenlane Brands, which increased 52.3% to $34.8 million.

The decline in the Consumer Goods segment is due to a major restructuring effort by the Company during fiscal year 2022 to reduce sales and marketing cost to align with revenue, sale of the Company's minority interest in Vibes brand and a shift in strategy to focus on in-house brands that have a higher margin profile and rationalized third-party brand offering generating top line revenue with lower margins.

For the year ended December 31, 2022, cost of sales decreased by $49.0 million, or 56.0%, as compared to the same period in 2021.

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Gross margin remained relatively flat at approximately 20.0% for the year ended December 31, 2022, compared to gross margin of approximately 20.5% for the same period in 2021.

Excluding post-merger strategic product rationalization initiative charges of $5.1 million, gross margin was approximately 20.6% for year ended December 31, 2021, compared to gross margin of approximately 22.0%, excluding damaged and obsolete charges of $6.7 million, for the same period in 2020.

Excluding inventory write-offs of damaged and obsolete inventory charges of $3.8 million, gross margin was approximately 28% for year ended December 31, 2022, compared to gross margin of approximately 25.0%, excluding damaged and obsolete charges of $5.2 million, for the same period in 2021.

Industrial Goods

For the year ended December 31, 2022, our Industrial Goods operating segment reported net sales of approximately $89.0 million compared to approximately $56.0 million for the same period in 2021, representing an increase of $33.0 million or 59.0%.

The increase is directly related to net sales of approximately $43.5 million contributed by our merger with KushCo, which have been included in our results of operations beginning with August 31, 2021, which is the merger completion date.

The increase is directly related to net sales contributed by our merger with KushCo, which have been included in our results of operations since August 31, 2021, which is the merger completion date.

For the year ended December 31, 2022, cost of sales increased by $28.9 million, or 64.8%, as compared to the same period in 2021.

The increase is directly related to cost of sales of approximately $36.7 million contributed by our merger with KushCo, which have been included in our results of operations beginning with August 31, 2021, which is the merger completion date.

Gross margin was approximately 18.5% for the year ended December 31, 2021, compared to gross margin of approximately 15.9% for the same period in 2020, representing 2.6% year over year increase.

Excluding post-merger strategic product rationalization initiative charges of $5.0 million, gross margin was approximately 25.8% for year ended December 31, 2021, compared to gross margin of approximately 15.9% for the same period in 2020.

The year over year increase in gross margin of approximately 9.9% is related to improved supply and packaging margins and a freight recovery surcharge introduced in the fourth quarter of 2021 to offset increased freight-in costs.

The increase is directly related to cost of sales contributed by our merger with KushCo, which have been included in our results of operations since August 31, 2021, which is the merger completion date.

Gross margin was approximately 17.3% for the year ended December 31, 2022, compared to gross margin of approximately 20.2% for the same period in 2021, representing 2.9% year over year decrease.

Excluding inventory write-offs of damaged and obsolete inventory charges of $5.1 million, gross margin was approximately 23% for year ended December 31, 2022, compared to gross margin of approximately 30%, excluding damaged and obsolete charges of $5.3 million, for the same period in 2021.

Net Sales by Geographic Regions

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Total net sales $ 137,085 $ 166,060 100.0 % 100.0 % $ (28,975) (17.4) %

United States

For the year ended December 31, 2021, our United States net sales were approximately $146.0 million, compared to approximately $112.5 million for the same period in 2020, representing an increase of $33.5 million, or 29.7%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed $40.0 million in total net sales.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $6.5 million, or 5.8%, to approximately $106.0 million for the year ended December 31, 2021, compared to the same period in 2020.

The year-over-year decrease was primarily due to a decrease in wholesale revenue of $3.0 million, and a decrease in consumer retail revenue of $1.6 million.

For the year ended December 31, 2022, our United States net sales to customers in the United States were approximately $126.3 million, compared to approximately $146.0 million for the same period in 2021, representing a decrease of $19.7 million, or 13.5%.

The year-over-year decrease was primarily due to an overall business decline in the Industrial and Consumer Goods segments.

For the year ended December 31, 2022, our Canadian net sales were approximately $5.8 million, compared to approximately $9.7 million for the same period in 2021, representing a decrease of $3.9 million, or 40.2%.

The year-over-year decrease was primarily due to a $7.0 million decrease in sales related to our shift away from lower-margin third-party nicotine brands, and was partially offset by $3.5 million in net sales contributed by KushCo.

For the year ended December 31, 2021, our European net sales were approximately $10.3 million, which were roughly flat on a year-over-year basis.

Our European operations continued to endure challenges over the course of the year, including significant COVID-19 restrictions that adversely impacted retail and supply chain operations.

The year-over-year decrease was primarily due to an overall business decline in the Industrial and Consumer Goods segments.

For the year ended December 31, 2022, our European net sales were approximately $4.9 million, compared to approximately $10.3 million for the same period in 2021, representing a decrease of $5.4 million, or 52.2%.

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 December 31, 2021, we had 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, 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.

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

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 October 2022 offerings.

As of December 31, 2022, we had approximately $12.2 million of which $5.7 million was restricted and $0.8 million was held in foreign bank accounts, and approximately $41.0 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 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.

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.

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.

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.

We have an effective shelf registration statement on Form S-3 (the "2021 Shelf Registration Statement") and may opportunistically conduct securities offerings from time to time in order to meet our liquidity needs.

At Greenlane, we are hyper-focused on making our business profitable and well-capitalized for long-term sustainability, and we have completed several initiatives to optimize our working capital requirements.

We launched Groove, a new, innovative Greenlane Brands product line, which is accretive to gross profit, and we also rationalized our third-party brands product offering, which enables us to reduce inventory carrying costs and working capital requirements.

We are in the process of divesting the packaging product line, which is expected to provide liquidity and allow for ongoing substantial cost reductions.

We have successfully renegotiated supplier partnership terms and are continuing to improve working capital arrangements with suppliers.

We have made tremendous progress consolidating and streamlining our office, warehouse, and distribution operations footprint in 2022 and we have plans to continue consolidating and streamlining in 2023.

We have reduced our workforce by approximately 49% throughout fiscal year 2022 to reduce costs and align with our revenue projections.

We continue to improve internal systems with a focus on improving efficiency through technology.

We believe that our cash on hand and the cash flow that we generate from our operations 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.

We have an effective shelf registration statement on Form S-3 (the "Shelf Registr ation Statement");

however, for so long as our public float is less than $75 million, our ability to utilize the Shelf Registration to raise capital is limited as further set forth in the paragraph below.

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.

The 2021 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 $200,000,000.

As described below, on August 2, 2021 we filed a prospectus supplement (the "2021 ATM Program Prospectus Supplement") for the sale of up to $50,000,000 of shares of our Class A common stock pursuant to the ATM Program (as defined below).

On March 31, 2022, the date on which this Annual Report on Form 10-K for the fiscal year ended December 31, 2021 is filed with the SEC, the 2021 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 is 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 2021 Shelf Registration Statement pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float.

We have not offered any securities pursuant to Instruction I.B.6 in the twelve calendar months preceding the date of filing of this Annual Report on Form 10-K.

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.

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.

Since the launch of the ATM program and through March 28, 2022, we sold 11,685,970 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $9.4 million.

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.

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.

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

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

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

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

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

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

We 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.

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 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 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 June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million.

All June 2022 Pre-Funded Warrants were exercised in July 2022, for de minimis net proceeds.

On 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 made available to the Company a term loan of up to $15.0 million.

On August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which made available to the Company a term loan of up to $15.0 million.

On February 9, 2023, we entered into Amendment No.

2 to the Loan Agreement, in which we agreed to, among other things, voluntarily prepay approximately $6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Loan Agreement and the

lenders under the Loan Agreement agreed to release $5.7 million in funds held in a blocked account pursuant to the terms of the Loan Agreement.

On 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.

The October 2022 Units were offered pursuant to a Registration Statement on Form S-1.

The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million.

On November 3, 2022, we entered into that certain Lease Termination Agreement, dated as of October 31, 2022 solely for reference purposes (the "Lease Termination Agreement"), by and between us and Warland Investments Company (the "Landlord"), which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California (collectively, the "Lease Termination").

Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.5 million as an early termination fee in consideration for the Landlord agreeing 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 ultimately realized from the Lease Termination.

On February 3, 2023, we filed a Registration Statement on Form S-1 (the "February 2023 S-1") seeking to register the public offering of up to $8.0 million in units, which has not yet become effective.

We can provide no assurances as to whether the February 2023 S-1 will become effective, or whether we will undertake this public offering following the filing of this Annual Report on Form 10-K.

On February 16, 2023, two of our wholly owned subsidiaries, Warehouse Goods and Kim International LLC, entered into an agreement with a third-party institutional investor pursuant to which the investor purchased, for approximately $4.9 million in cash, an economic participation interest, at a discount, in all of our rights to payment from the United States Internal Revenue Service with respect to the employee retention credits filed by us under the Employee Retention Credit program.

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.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2022.

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

As of December 31, 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 consolidated financial statements included in Part II, Item 8 of this Form 10-K:

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Net cash used in operating activities $ (26,426) $ (37,330)

Net cash used in investing activities (19,691) (4,144)

Net cash provided by (used in) financing activities 38,963 (1,063)

Net cash provided by (used in) investing activities 12,025 (19,691)

Net cash provided by financing activities 13,930 38,963

Net Cash Used in Operating Activities

capital primarily driven by decreases in accounts payable, accrued expenses and customer deposits of approximately $6.9 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $13.4 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 2020, net cash used in operating activities of approximately $12.3 million was a result of a net loss of $47.7 million offset by non-cash adjustments to net loss of $17.7 million, and a $17.7 million increase in cash provided by working capital primarily driven by increases in our accrued expenses and accounts payable, and decreases in inventories offset by higher other current assets.

Net Cash Used in Investing Activities

During 2022, net cash used in operating activities of approximately $26.4 million was a result of a net loss of $125.9 million offset by non-cash adjustments to net loss of $84.2 million, including an impairment charge related to goodwill and indefinite-lived intangibles of $71.4 million, and a $15.2 million increase in cash provided by working capital primarily driven by decreases in our accrued expenses and accounts payable, and decreases in inventories offset by higher other current assets.

During 2021, net cash used in operating activities of approximately $37.3 million consisted of (i) net loss of $53.4 million, offset by non-cash adjustments to net loss of approximately $9.6 million, including stock-based compensation expense of approximately $5.7 million, depreciation and amortization expense of approximately $4.7 million, and an offsetting reversal on the allowance of an indemnification receivable of approximately $1.7 million, and (ii) $6.5 million cash used in working capital primarily driven by decreases in accounts payable, accrued expenses and customer deposits of approximately $6.9 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $13.4

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

During 2022, net cash provided by investing activities of (i) approximately $9.6 million of cash proceeds from the sale of our assets held for sale, (ii) approximately $4.6 million of cash proceeds from the disposition of our interests in VIBES, and (iii) approximately $0.6 million of cash proceeds from the sale of certain equity securities investments, offset by approximately $2.8 million of cash used for capital expenditures, including development costs for our new enterprise resource planning system.

During 2021, net cash used in investing activities of approximately $19.7 million consisted of (i) approximately $15.6 million of cash used for the acquisition of Eyce, KushCo, and DaVinci, net of cash acquired, (ii) $4.4 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 2020, we used approximately $4.1 million of cash for capital expenditures, including computer hardware and software to support our growth and development, and warehouse supplies and equipment, including the build-out of our two retail locations, and the purchase of a domain name and VIBES trademarks in Europe.

Net Cash Provided by (Used in) Financing Activities

Net Cash Provided by Financing Activities

During 2022, net cash provided by financing activities primarily consisted of (i) approximately $21.1 million of cash proceeds from the issuance of Class A common stock related to our ATM Program, the June 2022 Offering and the October 2022 Offering, (2) approximately $14.6 million of cash proceeds from our Asset-Based Loan, offset by debt issuance costs of $1.5 million, and (iii) approximately $0.9 million of cash used for contingent consideration payments, (iv) and approximately $19.4 million of cash used for repayments related to the Eyce and DaVinci promissory notes, the payoff of the Real Estate Note, and repayment of the Bridge Loan.

During 2021, net cash provided by financing activities of approximately $39.0 million primarily consisted of cash proceeds of approximately $32.6 million from the issuance of Class A common stock in conjunction with our Common Stock and Warrant Offering in August 2021 and ATM Program, net proceeds from the issuance of the Bridge Loan of approximately $7.9 million, and cash proceeds of approximately $0.3 million from the exercise of stock options and warrants, offset primarily by approximately $1.1 million in payments on other long-term liabilities, notes payable and finance lease obligations and $0.2 million in distributions.

During 2020, net cash used in financing activities primarily consisted of approximately $1.1 million in payments on other long-term liabilities, notes payable and finance lease obligations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis