Q1 2021 Greenlane Holdings Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Yeah.
Yeah.
Okay.
Good morning, all.
Welcome to today's conference call to discuss Green land Holdings first quarter 2021 financial results.
A press release detailing the fan natural results for the quarter was distributed this morning and is available on the Investor Relations section of the Green line website.
As a reminder, today's conference is being recorded.
On the call today are Aaron Locascio, Chief Executive Officer, and Bill Mote, Chief Financial Officer.
Before we begin green line, we'd like to remind listeners that today's prepared remarks may contain forward looking statements and management make may make additional forward looking statements and response to the questions received.
These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
These statements are based on current expectations of the company's management and involve inherent risks and uncertainties and other factors discussed in today's press release.
This call also contains time sensitive information that is.
<unk> only as of the date of this lab broadcast may 18th 2021.
Factors that could cause green line fees on what's to differ materially are set forth in today's press release, and and Green lanes annual report.
And on 10-K and quarterly reports on form 10-Q filed with the SEC.
Any forward looking statements made today on this call are based on assumptions and it's up to date and Green line assumes no obligation to update these statements as a result of new information or future events.
So on today's call Green line management May discuss non-GAAP financial measures, including adjusted net loss and adjusted EBITDA Green line has included and we conciliation of these non-GAAP measures and today's press release, which is available and Investor Relations section of our website at G and L.
And dotcom.
I would like to announce on the conference over to Mr. Aaron Locascio, Chief Executive Officer of Green line. Please go ahead and fill the castle.
Good morning, and thank you everyone for joining us today.
This morning, I will review key highlights from the quarter and the significant recent progress on our growth strategies before turning the call over to our Chief Financial Officer, Bill Mote for a review of our financial results.
We started 2021 on strong footing following our successes in 2020 and we have made tremendous progress we continue to gain momentum on the growth of our core revenue and Greenland brands.
Core revenue was up 11, 6% to $32 3 million for Q1, 2021 compared with $28 9 million and Q1, 2020 and accounted for 95% of our total revenue for the first quarter of 2021.
We are also seeing continued growth from our higher margin Green Lane owned brands with revenue up 18, 4% to a record $8 5 million in Q1, 2021 from $7 2 million in Q1, 2020.
Which I am extremely proud to share is our second consecutive quarter of record revenue for our owned brands.
These owned brands continued to perform exceptionally well and the market and vibes and particular hit a quarterly revenue record of $2 7 million in Q1, 2021 up 72, 7% from Q1, 2020 and our Marley Natural line grew a significant 222, 4% and Q.
<unk> 2021 compared to Q1, 2020.
I would also like to note our Green line brands revenue accounted for 25% of total revenue for the first quarter of 2020 one.
These financial metrics demonstrate continued positive results from the work we completed throughout 2020 to increase our revenue mix to one more heavily weighted to our higher margin Green Lane owned brands.
I'm also excited to share the advancements we have made on the execution of our strategic vision, which continues to focus on launching exciting new consumer products into the market expanding our platform through carefully selected M&A opportunities and growing green line position as the leading provider of cannabis consumption.
<unk> globally.
The first development being the acquisition of ice and early March ice has long been a green line partner and as the world's leading manufacturer of specialty silicones smoking products.
Their premium products have been a standout in the marketplace and we were thrilled to be able to bring them in house.
We are excited to work with their highly experienced and extremely talented team and continue the successful growth trajectory. The brand has delivered to date up 52, 6% and Q1, 2021 compared to Q1 2020.
As we continue growing our green line brands revenue, we benefit from the deep and long standing relationships. We have built over the past 15 years with a large percentage of the industry's leading brands.
We have developed significant insights into the market. Thanks to the work, we do with brands over their entire life cycle, which gives us a strong sense of when is the opportune time to acquire.
Our criteria to add brands is very selective and we focus on products that will not only enhance our margin profile, but ones that will elevate our customers' experiences.
We're adding products that continue to position us as the industry, leading provider of premium cannabis accessories.
We have a robust pipeline and expect to continue executing on similar opportunities as we anticipate and industry consolidation will continue to happen over the next few years.
In addition to being a benefit to potential M&A the industry experience and expertise we have developed over the years has positioned us well to adapt to industry changes, including the increased regulation on the mailing of vaping products as.
As we learned of a recent shift in the industry as a result of the Pact Act our scale and expertise has allowed us to capitalize on this opportunity.
We designed and are executing a solution leveraging our robust compliance infrastructure and our logistics experience to continue shipping vaping products and the United States.
This solution also enables us to bring and revenue, providing fulfillment and other services to new and existing customers, who lack the resources and expertise to comply with the new and constantly evolving regulatory requirements.
We just recently attended the T P Convention, which was our first trade show in a year the.
And the reception was very positive the show was very well attended and we feel shows the trend of retail reopening and a meaningful way.
Performers revives rolling papers ice and student glass contributing to over $4 million and revenue.
We were able to introduce our vibes rolling papers, do and expanded customer base and the traditional convenience class of trade.
This class has also begun to show interest and the greater product set because of expanded legalization throughout the country.
We look forward to attending future events, such as this and ramping up our presence at in person events as we grow our critical mass.
Before turning the call over to Bill I'd like to and by discussing the transformative merger with <unk> that we announced at the end of March.
We were thrilled to announce this combination as it brings together two of the largest ancillary cannabis products and services companies in the world.
We expect this transaction will considerably enhance the scale of our business, while also resulting in significant synergies and an important point in the industry.
We believe that through this combination we will be strongly positioned to grow our role as the leading player in the ancillary cannabis sector.
With anticipated benefits not only to our respective shareholders and employees, but also our valued customer bases and third party brand partners through enhanced product offerings, even more competitive pricing and expanded ancillary services.
As both Green Lane and push co our leaders and the ancillary space. We are combining two robust differentiated and innovative offerings to create a best in class product portfolio.
In addition to a differentiated and complementary product offering we will also be merging two distinct customer bases.
The combined company will serve a premier group of customers, which includes many of the leading multi state operators single state operators and Canadian Lps and the majority of the top smoke shops, and the U S and millions of direct consumers, allowing for tremendous cross selling opportunities.
With a combined 25 years of experience over 200 articles of intellectual property, and 9000 and brick and mortar customers and millions of direct customers along with strong relationships with key vendors. We believe we will be best positioned to continue delivering innovative product solutions to our global customer base.
We estimate that the pro forma combined company is tracking to achieve approximately between $310 million and $330 million of revenue and that we will deliver incremental incremental revenue growth beyond what either company can achieve on a standalone basis.
In addition to the revenue growth opportunities there are significant potential cost synergies that will enable us to improve margins and enhance profitability.
We're expecting the improved operating leverage and enhanced scale of the combined company to drive approximately $15 million to $20 million and cost saving synergies within 24 months of closing, resulting from economies of scale and optimize distribution network and reduced operating expenses.
Following completion of this transaction, we believe the combined company will have a strong platform for accelerated organic growth and should be well positioned to capitalize on attractive market opportunities to grow profitably and drive value for all shareholders.
We've made substantial progress on our strategic initiatives during the first quarter and will continue to accelerate this growth strategy and moving through 2020 one and.
With that I will now turn it over to bill to run through our financial results and further detail.
Thanks, Aaron and Hello, everyone. As a reminder, the results I will be reviewing for you. This morning can be found on in our earnings release that is available on Edgar and the Investor Relations section of our website at G N L and dot com.
As a reminder, before I begin our core revenue is defined as all non nicotine revenue and Green Lane brand revenue is inclusive of ice figures.
Net sales of Green line owned brands grew 18, 4% to $8 5 million for the year, our best quarter ever for our Green Lane owned brands, which represented 25, 1% of total net sales for Q1, 2021 up 380 basis points from 21, 3%.
For Q1 and 2020.
Core revenue grew 11, 6% to $32 3 million in Q1, 2021 from $28 9 million and Q1 and 2020 total net sales increased 34 million and Q1 from $33 9 million and Q1 and 2020 with core revenue now accounting for over 90.
Our for 90%, 95% of revenue for the quarter compared with 85% and Q1 2020.
Our United States segment net sales increased five 7% to $28 7 million for Q1 from $27 1 million and Q1 and 2020, we are very pleased with our growth and the United States, which occurred despite the lingering impacts of the COVID-19, pandemic net sales and the United States.
Increased due to a $1 $4 million increase and B to B sales of 900000 dollar increase and ecommerce sales and a 600000 dollar increase and channel and drop ship sales offsetting declines in supply and packaging and retail sales.
Our Canadian segment decreased $1 8 million for Q1, primarily due to a decrease of one $6 million and our non core revenue sales, resulting from our strategic shift away from low margin sales.
Looking at our European segment, we saw meaningful growth of 18, 5% as net sales increased to $2 8 million for Q1 compared to $2 3 million and the same period of 2020.
Primarily due to the establishment of third party website sales, resulting from 400000 of additional net sales and 200000 of growth and <unk> sales, which offset a $200000 decrease and retail store sales due to pandemic related closures.
Europe is an exciting growth Avenue for us and we are very pleased.
The segment has performed significantly better than last year. Despite continued impacts from the COVID-19 pandemic.
As populations around the world see increasing vaccination levels and the economies begin to reopen from pandemic closures, we have seen and expect to continue to see sporadic shortages and availability and transportation resources and materials like shipping containers and semiconductors, which could.
Impact our ability to receive complete shipments of products potentially impacting our ability to maximize revenue until conditions normalize.
Gross profit was $7 3 million or 21, 5% of net sales in Q1 compared to $7 3 million or 2021, 6% of net sales in Q1 and 2020, while merchant merchandise margin increased by four 9% and resulted in a $1 7 million or.
18, 3% increase and merchandise gross profit the improvements were offset by a $900000 increase and damaged and obsolete inventory write offs and a $500000 increase and third party profit sharing contract fees, excluding for the impacts of the damage and obsolete inventory gross margin.
And would improve to 24, 1%.
We expect our overall gross margin and continue to improve as we execute on our strategic vision with Green Lane brands at the core.
G&A costs for Q1 decreased to $8 3 million compared to $8 7 million and Q1 and 2020, primarily due to a reduction of accounting fees of approximately 800000, the recognition of a reversal of the allowance on our indemnification receivable of approximately 600000 and and.
Reduction and trade show expenses of approximately 400000 due to continued focus on expenditure management as well as travel and other restrictions implemented in response to the COVID-19 pandemic. These reductions were partially offset by an increase and logistics costs and an increase and legal expenses of approximately for.
400000, and connection with the due diligence and acquisition related services. During Q1, we expect our third party logistics cost will decrease going forward as we continue to optimize our distribution platform.
Net loss for Q1 was $7 7 million compared to $16 7 million and Q1 and 2020 adjusted net loss was $5 5 million and Q1 compared to $6 1 million in Q1 and 2020.
Adjusted EBITDA loss was $5 2 million and Q1 and improvement of $1 1 million compared to adjusted EBITDA loss of $6 3 million and Q1 2020.
Cash was $12 3 million as of March 31, 2021, a decrease of $18 1 million from approximately 30.
4 million as of December 31, 2020, due in large part to.
Two payments to vendors decreasing our accounts payable by $10 2 million over the period as we paid for elevated purchases and preparation for Chinese new year payments to Europe's tax authorities totaling $2 7 million and $2 4 million and cash paid for the acquisition on base.
As an important note. We also received a refund of $4 1 million from the government of the Netherlands in Q2 2021 related to the tax payments.
Since the closure of our Q1 of Q1, our cash balance has grown as anticipated and future cash usage will primarily be driven by M&A activities.
We have developed a robust pipeline of potential M&A and are currently in discussion with several attractive acquisition opportunities. We believe we can execute on these opportunities throughout the remainder of 2021 with the improvements and our financial performance and strong growth and Bruce both core and Green Lane owned brands revenue.
And as well as our recent acquisition of ice and future merger with <unk>. We believe this will be a pivotal year for us and we are more excited than ever about the future for Green line.
With that I will turn the call back over to the operator and open it up for Q&A.
Thank you, ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone.
Or withdraw your question press the pound key.
And Thats Star one to ask the question.
We ask that you limit yourself to three questions and you can jump back in the queue for other questions.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is open.
Hi.
Thanks for taking the questions.
So just a nice result to see the core I'm, sorry to the house brands kind of get up to 25% on revenue, but can you give us a sense of how.
Much that benefited from ice and the quarter you got to get a full quarter of ice for the first time. So just can you can you maybe don't want to break out by.
By revenue product and I'm, just trying to get to that kind of organic growth on the house brands and then.
Where you think that can go just talking about greenway and now as a standalone business organically say by the end of the year as we try to think about the impact it would have on margins.
So just just this is bill and just to answer the ice question and we don't break out ice specifically from a revenue perspective, but we have indicated that it's up 56% versus the previous peer.
Period, so that that's the that's the initial Ah.
The initial expectation that we've set so.
And that we don't break out the individual dollar amount though.
Right now I'm, just trying to get a sense the organic growth in the AR and AR and the house brands, but maybe you could.
Moving to the second point of just what you think house brands can get to.
You know maybe by year end or something and if green language does this still stand alone.
Hey, Glenn and return.
Nice to speak with you so again high level going back to your first question.
The high level answer is yes, we are we are seeing excluding ice and without.
Without getting into.
Detailed specifics we continue to see robust organic growth as noted by some of the brands such as like Vibes and Marley natural as an example, so even excluding ice we see we do see meaningful organic growth and anticipate that trend to continue coupled that with the robust M&A pipeline.
And that we alluded to.
We believe that we can continue again last quarter. If you remember our concentration of Green line brands was 20% this quarter was 25.
We believe that we can continue to increase that percentage meaningfully throughout the year.
On a standalone basis.
You know again, not providing too many specifics, but think that we can continue that trend going from 20 to 25 sequentially and believe that we can make meaningful progress by the end of the year to increase that.
Further on a standalone basis, and we've also said publicly aspirational Lee we want our Green Lane brand owned brands to be at a 40% mix level over the course for the next three years. So that's that's our aspirational goal as we continue to travel from from 20% last year and continue that path.
And kind of it won't be perfectly linear but that will be that will be our goal and where we're headed.
Yeah, great. Thanks, that's very helpful. And then just quick to the.
So the two the consolidation that you and your under underway with so last time you reported it was kind of a day that you've announced that news. So can you just give us a sense of.
A big part of the story is the cross sell opportunities and stuff. So just kind of little more color on the feedback you've gotten.
And from some of the you know big Msos or areas, where you expect to see that cross sell.
Just the color you've seen over the last six weeks since you made the announcement that'd be great. Thanks.
Yeah, Great question, and very I mean, we've seen a tremendous amount of interest very early on.
For some of the industry's top msos have actually.
<unk> reached out to us directly to ask questions about our retail merchandising program and the upsell and cross sell opportunities and the CPG products, So and that's without again without.
Without us even proactively reaching out to the msos them actually reaching out to us. So I would say that it's very positive early signs are that the msos and single state operators.
Are very curious and interested in learning more about the opportunity to drive additional revenues to their store and we think will be a meaningful driver of potential organic growth and the future for the combined company.
Great. Thanks, I'll hop back in the queue. Thank you.
Thank you.
Our next question comes from the line Aaron Grey with Alliance Global Partners Your line.
Line is open.
Hi, good morning, and thanks for the questions.
So first one for me it's just.
So talk about what's driving in terms of too low.
Fortunately.
Colin.
On the income most you bought and.
And a year and so you were talking about and.
And some of the kind of entrenched.
Uh huh.
Within Youre, breaking up or if youre kind of Oh, I'm, sorry can you break it up a bit sorry.
Trapping up so we have every other word.
Can you hear me Okay now.
It sounds better yes.
Okay, Yeah, sorry, yeah. So it's based on talking about <unk> and the C store Channel initiative, just on maybe how many incremental stores you plan to be and by yearend and then whether or not you're on being added to the existing brands there or something.
From the strategy that you're having there and then also maybe and additional marketing initiatives that you plan to go on to that more mainstream channel. Thank you.
Sure So I'll start and nice to get connected here.
So we haven't we.
We have not.
Made any assumptions yet in terms of the number of additional doors that we will reach and the C store environment, yet because we're seeing such strong growth also.
In the and our traditional smoke shop environment that we want to make sure that we're able to maintain constant inventory levels for our existing customers as we bring on new customers.
But we do believe it just and early conversations again, we went to the T. P Convention. This last week and had meetings with some leading C store and.
C store customers and the response very early on was very tremendous so I would suggest that looking to other rolling paper brands and the space I could give you a pretty good gauge or guide in terms of the size of opportunity that that represents.
And we're spending a lot of focus ramping up our production capabilities on bobs and particular to meet what we believe will be a substantial increase in demand and the near term.
Okay. Thanks for that car and that's helpful. And then second question for me in terms of the incremental M&A right. So if we think about buying and then you know maybe some of your other products. Obviously, you know something like willing pay for as much easier to expand into some of the more of the mainstream where some of your other products are currently.
More focused on e-commerce for the head shop channel and you're also looking to moving to the dispensary channel. So as Youre looking at the incremental M&A. You know are you focused more on potential for brands and products that would be service to more of these mainstream channels or as well and the ones that are more for that kind of core had shop that you're also looking to transition into good.
Countries along with your.
Merger with Costco and thank you.
So two parts to that for.
For starters.
We do and in addition to a robust pipeline of M&A opportunities and we actually have a robust pipeline of products that we have designed and developed and we are looking to place within either our current portfolio of brands that we own and operate.
And even potential future of brands that we're looking to acquire or build and some of those products do include breaking more specifically catered for the.
And the you know the light and legal cannabis market and the form of dispensaries, Msos and single state operating operators, so and so forth. So we definitely see that as an opportunity, but again I will like like you alluded to I will remind everyone that we while our CPG products have traditionally been sold and <unk>.
Oak shops.
And we believe that they will be continue to sell and smoke shops and the future. We do truly believe that more of these CPG products will be sold in dispensaries throughout the world as cannabis continues to legalize on a global basis.
It's two fold, yes, there are specific products catered towards the existing type of products that msos carry and are interested in carrying and.
And we're also very keen to leverage the relationships on a combined Cush-cush Green lane basis to get this the traditional CPG products on the front of the store as well.
Yes.
Okay, great. Thanks for the color I'll jump back and Joe Kim.
Thank you.
Our next question comes from the line of Vivien <unk> with Cowen Your line is open.
Hi, good morning.
Morning Vivien.
So.
And in the prepared remarks, Bill you called out higher logistics, and and legal costs legal costs and of course.
And I'm sure with M&A, but you have to have.
On the logistics cost.
It sounded like you were talking about domestic logistics and I was curious if you could comment on.
Freight costs, because I understand and imports continue to be backed up and air and water freight continues to be inflated. So how does that impact your gross margin this quarter.
It had an impact I would call it under 50 basis points in terms of overall gross margin impact, but we have seen higher shipping costs just on a global basis from Ocean freight perspective, obviously, there's a lot going on in that marketplace and theres been a couple of snack foods.
And the last quarter that have impacted global shipping rates.
Logistics costs, specifically is referencing just are our own transition into our three PL and as we optimize that relationship those logistics costs were elevated slightly we did have a large physical inventory Tori we did in January as well that impacted that that was.
That wont continue to recur.
That's margin wise related to global freight I think I just gave you that number and then the logistics cost specifically and G&A is related to three PL.
Understood. Thanks for that color I much appreciate it and then my second question is on your higher standard store can you just update us on the status of that given reopening across the U S.
Yeah, both both stores are open and operating now and a normal functionality, obviously and COVID-19 still has a little bit of and impact us with people getting out, but as we said earlier people seem to be getting out and about now and.
And those stores are starting to pick up and their and their overall sales, but still operating both the Chelsea market and the Malibu village store and we will continue to operate those peer over the year.
Okay. So to summarize then is it fair to characterize the sequential improvement and foot traffic.
I haven't looked at the foot traffic details Vivien, but.
It's fair to assume that as COVID-19 restrictions lift that more people will be and the retail outlets and I would say, maybe and in particular and roughly the last six weeks and particular six to eight weeks.
We have seen a more meaningful increase in traffic.
In particular in New York over California, Although we're starting to see improvement and in California, as well on a sequential basis. So definitely some some meaningful signs of life and and the brick and mortar environment.
Terrific. Thanks, so much that color.
Thank you. Thank you our net.
Question comes from the line of Derek <unk> with Canaccord. Your line is open.
Yes, hi, guys and thanks, and I just want to follow up on that last question quickly have you guys.
I guess more so and the U S, where we've seen some of the COVID-19 restrictions.
And you know being less impactful on the you guys seen any sort of changes in consumer purchasing behavior. If you go back to pre COVID-19 levels and E. Commerce. For example are you seeing continued strength and e-commerce.
So hey, Derik, great to get connected this morning.
So we are seeing a what I would say is a leveling of the e-commerce growth certainly not seeing the same growth numbers that we start the height of the pandemic as again, everyone was really the only avenue to purchase products for a period of time was was.
E Commerce.
We are seeing you know again as the brick and mortar side of the business has increased substantially and I definitely see seen a leveling of the ecommerce business, but its still grown year over year, just not to the same level and.
And that's also in part due to some resources that we're allocating there because we do believe that e-commerce will be a meaningful Avenue.
In the future as the pandemic.
Has really.
Shifted consumer purchasing patterns and behaviors, we believe on on a somewhat permanent basis or at least to a degree.
Yeah, No we would agree with that for sure.
Bill maybe for just for you a question on the on the working capital and you mentioned and you called out a depression was $10 million payment.
And for accounts payable over vendors do we should we expect this to normalize over the course of the year.
Yeah that was really Chinese new year in and of itself. We built inventories in advance of Chinese new year that obviously caused the bubble of payables that we had to pay out.
And so that that was that was a large chunk of the decrease in cash and I was just calling that out but.
And like I said and in the notes in the script there.
We will see we have seen cash normalize and in fact, we've gotten some refunds from our VAT tax work that we've been doing and Europe, and we expect that cash actually increased in Q2, as we had expected and will continue to manage cash judiciously as we go forward.
And would it have increased.
And and above that $4 million payment.
No, but it did increase.
Okay. That's helpful. And then just the last one for me just in terms of SG&A you guys have obviously you have a cost reduction plan in.
In place and advance and of the merger with with Cashcall can you just give us some comments on them you know.
Areas, where you continue to push on that on that Brian.
Well of course, as we indicated earlier the the third party logistics and optimizing that debt scenario. We continue to push there we continue to maintain and lower head count wherever wherever possible.
We did a large reduction in December.
And we also are transitioning now to EU, three PL and EU, which is.
We're now shipping out of our three PL and EU, which has been successful. So all of those are aimed at creating the most efficient organization. We can have as well at very scalable organization. So as we grow sales that we don't run into constraints around the ability to ship our space needed to.
To store and process orders.
Okay, great. Thank you very much.
Thank you.
Our next question comes from the line of Eric This Laureus with Craig Hallum.
Your line is open.
Great. Thanks for taking my question.
I was wondering if you could elaborate a bit on the M&A pipeline as it relates to your discussions with and with Msos.
Essentially which which types of product categories and are you guys focusing in on for your M&A pipeline and.
How has that evolved at all with these discussions.
Discussions with with Msos and and I'm looking to include ancillary products and their stores.
And as we just wondering how your current and future brand portfolio and sort of matching up with the types of products that msos and I'm looking to include and Theyre dispensaries. Thank you.
Yeah, Great Great question.
So again looking at whether it's eight primary categories that green lane sales across and and each of those product categories and we believe that there is an opportunity.
And to create products that.
On cater more towards the Msos and what I mean by that is again looking at cartridges vape cartridges as an example.
We have additional and our and our internal organic pipeline.
New Childlessness and packaging offerings as an example.
But again the primary.
And of M&A.
And activity around Msos is.
And focused on kind of that closed cartridge vaping system side more than anything.
And at various batteries and again, they do use a lot of battery technology, and and dispensaries that they coupled with the cartridges and so those would be the primary ones, but we do have in each of our primary product categories.
On a combination of M&A opportunities as well as products that we've developed and are developing internally.
And congrats and I know and I also want to as decided on I also want to mention that we didn't talk about before there are even some M&A opportunities that help us get into.
New and meaningful relationships with big box stores.
And.
Third party sites like Amazon as well, where traditionally a lot of the products that we sell are not often sold on the and those stores or places.
Although there are categories and products that meet the criteria for.
For breaking into those opportunities, which are also very exciting developments.
And I guess, just elaborating on that a bit and are those more.
The.
Platforms or websites or is that sort of still keeping with the.
Products and brands type M&A.
So we've always historically looked at acquisitions from both a vertical and a horizontal perspective horizontal being broadening our distribution pipeline Costco can largely be described as a horizontal merger.
And vertically we do look very much so towards the brand side of things and when we're when we're acquiring additional brands, where often times turning towards our existing vendor.
Vendor landscape, where we've built these meaningful long term relationships just like we did with ice so having these long standing relationships with these brands and the space.
Really provides for.
And that strong pipeline and to follow on again.
Working with the dispensaries and how we can increase the revenue.
And Msos a lot of that activity is driven around I know, we talk about the back of store products. If you will and cartridge closed cartridge systems and child resistant packaging, but I want to underscore the potential the true potential to generate more revenue per square foot in the <unk>.
<unk> landscape by leveraging this robust portfolio of premium cannabis ancillary brands, because we truly believe the future in the MSL will include a suite of carefully selected and Merchandised product from the Green line portfolio.
<unk> to drive additional revenues for the stores so as much as we talk about the traditional products sold and and Msos.
The real core focus is delivering on front of store CPG products.
Okay, Great I appreciate the color. Thank you.
Thank you our.
Our next question comes from the line of school and Fortune with Scott Fortune with Roth Capital. Your line is open.
Hi, Scott Good morning, this is Nick stepping in for Scott.
Just looking for some color on the Canadian side. It looks like you are continuing to shift away from the lower margin and nicotine sales, which kind of impacted the Canadian side, a bit but it's still comprised about seven five percentage of your mix and 9% of Christian was mixed last quarter. So I was wondering how youre looking at the go forward strategy on that side of things.
So I mean, Canada remains a very important.
Part of our geographical profile for the company.
But again the predominant play.
Place that our products are sold in Canada is brick and mortar.
And we have a very strong brick and mortar presence even more so than our e-commerce presence when compared to the U S or Europe.
And Canada has been under a tremendous amount of pressure and continued pressure related to the COVID-19 pandemic debt is resulted in continued store closures.
Whereas in the <unk> environment, where theyre largely catering towards dispensaries, both from a recreational and medical perspective.
Those businesses are often deemed as essential where smoke shops.
Sometimes are not which I would largely attribute to the change that youre seeing there, which we believe again to be temporary as vaccination rates increase throughout the world.
Okay. Appreciate the color and then on the kind of facility consolidation side can you just touch on your potential distribution center footprint and.
How youre looking at the merged footprint with Costco here on the near term.
And we saw initiatives on there and to consolidate their footprint and it looks like you're planning to get down to five centers as well. So if I could just get an update there that'd be great.
We we definitely are looking at and overall ecosystem of distribution facilities, we haven't we haven't necessarily made any direct.
Common Terry publicly on that at this point and there are certain legal things, we got to consider so but definitely as you can imagine and in our synergy scenario there is.
We need to look at all the sites that we have and what we need to do to be most efficient from a distribution perspective.
Okay I appreciate it thanks for the color.
Thank you.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Our next question comes from the from the question from there.
On line of Mike Grondahl with Northland Securities.
Line is open.
And Michael on for Mike. Thanks for taking my questions. Maybe first just on the strength and owned brands. If you could give us a high level breakdown on.
Pricing or volume versus product mix there.
Can you maybe restate that I don't I, just want to make sure we're capturing the whole question.
Yes, just on the house brands.
On the quarter can you just talk about volume versus pricing and product mix and.
What kind of drove the strength there.
Yeah.
And it's largely organic and we have not made any meaningful changes and price points and in any direction down or up.
On.
So it's really just organic it's really organic growth that we're seeing and again.
I would attribute it to the focus right, we're putting a lot of focus on growing our green Lane brands.
And it's showing up and a meaningful way absent any.
Levers such as modifying price points as an example.
And some brands are performing better than others at sometimes it's related to supply chain challenges more than anything.
Which is why some brands outperform others, but if you look on a on an annualized basis, we continued to see improvement across all of our Green line brands.
And again, just some more than others and yet we haven't changed pricing margins are holding steady.
Volume is primarily the driver.
Got it and that's helpful.
And then just sort of on I guess inventory management I think it was 260 bps. There were lost from damage and thoughtfully and inventory is there much year to.
Improve on that one just be kind of offset by more extensive process.
Yeah, So look on a normal ongoing basis and I believe we've said this publicly expect about $300000 a quarter in terms of excess and obsolete that would be if there is no clean up if there's no no expiration dates about 400000 of that 900000 related to expired lots meaning.
Product that had.
Expired.
I had a date code on it and there was an expired on it. So we we wrote that off related to CBD, which has a lower and lower part of our business as we progress.
But on a normal ongoing basis, my expectation would be call. It 300 to 400000.
Order, so about half of that 260 bps.
I would expect just on a normal ongoing the rest of it is is trying to carve out that excess. So you can see the pure margin related to the products that are being generated which is increasing on a regular basis. So we wanted to make sure and call that out so people could model that.
Thanks, Paul back in queue.
Thank you. Thank you.
I'm not showing any further questions and the queue I would now like to turn the call back over to Mr. Locascio for closing remarks.
Great well. Thank you again for joining Green line conference call today, as always I want to finish by sincerely thanking our team for all their dedicated hard work.
We look forward to updating you on our future 2021 progress and the next quarter. Thank.
Thank you. Thank you everyone.
And Greg Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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