Q3 2021 Greenlane Holdings Inc Earnings Call
Okay.
Good morning, and welcome to today's conference call to discuss Green Lane Holdings third quarter 2021 financial results.
Yes release detailing the financial results for the quarter was distributed yesterday afternoon and is available on the Investor Relations section of the Green Lane Web site at Investor Dot GNL and Dot com.
As a reminder, today's conference is being recorded.
<unk> of this call as well as a copy of the supplemental earnings slides will be archived on the company's IR website at Investor Dot GNL N Dot com.
On the call today are Nick Kovacevich, Chief Executive Officer, and Bill Mote, Chief Financial Officer.
Before we begin Green lane, we'd like to remind listeners that today's prepared remarks may contain forward looking statements and management may make additional forward looking statements in 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 speaks only as of the date of this live broadcast November 16th 2021.
Factors that could cause green lanes results to differ materially are set forth in yesterday's press release and in Green <unk> Annual report on Form 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 as of today and Green Lane assumes no obligation to update these statements as a result of new information or future events.
During today's call Green Lane management May discuss non-GAAP financial measures, including adjusted net loss adjusted gross profit and adjusted EBITDA.
<unk> has included a reconciliation of these non-GAAP measures in yesterday's press release, which is available in the Investor Relations section of the company's web site at Investor Dot GNL and Dot com.
I would now like to turn the call over to Mr. Kovacevich, Chief Executive Officer of Green Lane. Please go ahead Nick.
Thank you operator, and good morning, everyone. It's good to be fine with speaking with all of you on an earnings call. After the merger with Costco and this will be my first quarterly call as the CEO of Greenway I would like to thank all of you for joining us today and I'd like to thank the entire Green Lane team for their incredible work during a truly transformative quarter for the company.
We are excited today to share our progress made during Q3 and more importantly to update you on our integration growth strategy, our near term outlook for a successful future.
Industry, leading ancillary cannabis company in house of brands.
Our first few months as a combined company had been off to a strong and encouraging start demonstrated through several realize revenue and cost savings synergies, including the consolidation of certain vendors and infrastructure as well as the development of go to market cross selling strategy across each of our respective platforms. We are extremely pleased with.
The integration milestones, we have achieved thus far while simultaneously driving meaningful progression in the business.
I'll begin my prepared remarks today by providing an in depth overview of our strategy before providing some comments around our outlook and then finishing off with a quick review of our Q3 highlights after that I will turn the call over to Bill Mote, Our Chief Financial Officer for a more comprehensive review of our Q3 financial results before we then open it up.
For Q&A.
So with that let's jump right into slide three of the supplemental earnings slides, which you can find on our IR website. If you haven't downloaded them already before we discuss our strategy and outlook going forward. It's important to look at our business in two different but complementary lenses as seen here on slide three.
The first is the consumer goods side of the house, which is focused on serving consumers across wholesale retail and E. Commerce operations through both our proprietary brands like Bai Marley natural Keith Haring and higher standard as well as lifestyle products and accessories from leading brands like Pax Storz <unk> bickel.
Grant go science and many more.
I'll be spending the bulk of my prepared remarks today talking about this unit.
It forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher margin proprietary owned brands.
On the other side, we have our industrial goods unit, which is focused on serving the premier brand operators and retailers through our wholesale operations by providing ancillary products are central to their growth such as customizable packaging and vaporization solutions and including our own house branded products under the pollen gear label.
Going forward, we will be creating two segments for these units. So that we can report financial figures that can help you track, our overall progress and performance of our business in a better fashion, but for now we're going to be providing the slide and framework to help you conceptualize. These two main parts of our business.
Which are roughly equal in sales today.
That context in place, let's turn to slide four where we focus on our core part of our consumer goods business our brands.
Then just a quick moment, providing a snapshot of our brands before ultimately covering our growth strategy on slide five over the past couple of years, we have been gradually shifting our business away from selling purely third party products to developing and growing our own portfolio of proprietary brands.
Z to see how this strategy helped to scale, our revenue and become more.
Troll of our own destiny, not to mentioned, making us stickier with our customers.
A big part that is often overlooked and that we wish to emphasize.
Is that having your own brand means you can enjoy much higher margins than you would otherwise our in house brands command double or even triple the gross margin.
Any third party products, we sell with some brands such as ice and vibes operating gross margins north of 50%.
So it's no wonder that we have set our sights on growing our house of brands, both organically and Inorganically and in turn enhancing margins and ultimately driving higher profitability for our shareholders to better understand how attractive. This strategy is let's turn to slide five.
Touched on some of the reasons for why it makes sense to shift the branded goods such as higher revenue and margins, but that's not all here. The four main reasons or pillars for why we are pursuing the strategy and I will now spend a few moments going over each.
Pillar number one building a house of brands expand our strategic moat.
Defensibility by enhancing our intellectual property portfolio as we develop new product lines for the brands, we own and assume the IP of the brands. We acquired in addition, it makes us stickier with our customers as once they experienced success with our brand they cannot buy them anywhere else, but through us on top of that we are afforded.
Significant cross selling opportunities because of this strategy over the past eight months, we've talked in great length about the strategic benefits of the <unk> merger and one of the key benefits is being able to sell our brands into <unk> customer base of vertically integrated.
<unk> and Msos, which today, we estimate to be between 500 to 1000 retail doors across the U S.
As those doors continued to grow and we penetrate these customers. Even further we can cross sell additional products from additional brands in our portfolio, helping us become a one stop shop for all these customers ancillary consumer goods needs.
And finally this strategy provides economies of scale as the more products, we sell the more bargaining power, we have with our vendors and are able to negotiate better prices, which should translate to higher margins and or more cost savings for our customers.
If we were just a distributor of third party products, we can't go very far but by developing launching and acquiring our own brands, we create significant brand value and defensibility.
Pillar number two which I've touched on already is that this strategy allows for higher revenue stream and significantly stronger margins.
This will be a key pathway for us and our pursuit of profitability and from there it will allow us to generate stronger returns for our shareholders.
Pillar number three is that we can continue to scale across the globe without requiring any significant catalysts such as federal legalization.
Unlike the multistate operators.
We can ship our products nationally and globally, and we can scale faster and wider.
We don't have the same interstate restrictions that they do because we're non plant touching and this creates a window of opportunity for us to scale quickly and to build a formidable position for when federal legalization gets passed and implemented which could take several more years.
And lastly, the fourth pillar why that strategy makes so much sense is that we are building the only true ancillary house of brands in the industry.
If you look at the Msos there is stiff competition amongst a number of players who are all more or less competing for the same price.
Building a house of brands on the plant touching side, however, on the ancillary side, where replay those same dynamics don't exist.
More of a fragmented space with the players focused on a particular subset of each category.
To our knowledge virtually no one else is creating a true house of brands on the ancillary side and certainly no. One is doing it at the scale that we are.
Our mission is to elevate all elements of the consumption experience and while having the plant touching CPG products.
Obviously important for our industry. So is having all of the products and accessories needed to enjoy those cannabis products, which we see as a clear opportunity for green Lane to own as we continue growing our house of brands and the higher margins. It contributes to our overall business we have.
Benefit from the deep and long standing relationships, we have cultivated over the past 15 years with many of the industry's leading brands. We believe we have a clear competitive advantage in working with top and up and coming brands throughout their lifecycle and have developed significant market and consumer intelligence, which provides us unique.
Insights into which brands to potentially acquire when we're looking in the future.
Looking ahead.
We will continue to build our portfolio of top ancillary CPG brands as seen by our recent announcement to acquire leading vaporizer brand da Vinci shown here in slide six.
I want to spend a couple of minutes talking about the acquisition as there appears to have been some confusion when we announced the deal perhaps somewhat due to the price and maybe even to a larger extent around the pack deck rules, which were recently finalized and implemented.
First off the team at da Vinci has done a phenomenal job pushing the envelope when it comes to innovation, which has helped the brand's product lines grow tremendously since the launch of their award winning IQ Vaporizer back in 2016, a track record that we definitely look to expand upon once the acquisition closes sometime here in Q4.
In fact, the brand is looking to close the year at approximately $12 million in sales with margins of 60%.
That's right gross margins of 60%.
The consideration for the acquisition as both cash and stock and includes a number of earn outs are tied to the performance benchmarks that the da Vinci team must meet in order for the total purchase price to hit the cap of $20 million. So youre looking at roughly one seven times sales at the high end for a fab.
<unk> growing vaporizer brand with proprietary and patented technology that commands upwards of 60% product margin.
Of course.
If they don't achieve the performance benchmarks, we will end up paying less than the $20 million, but if the business performs as well as we expect and the da Vinci team achieved the performance benchmarks. Then we would expect that to translate into improved revenue and margins for Green Lane, which should then translate to a higher stock price and therefore less.
Stock being issued as part of the total compensation a scenario that we believe creates great alignment of interests.
Secondly, there've been some additional interest in our rationale for the da Vinci acquisition, given the recent pack that developments, which among other provisions band the mailing of electronic nicotine delivery systems or in via USPS and have led to other shipping restrictions by private carriers contrary to maybe your first impression.
These rules do not have a significant impact on greenway.
Final pack deck rules do not apply to products that are used only for dry herbs or solid concentrates such as the da Vinci Vaporizer Storz, <unk> bickel volcano and a variety of other products in our portfolio that in aggregate make up the vast majority of our consumer goods sales.
Additionally, greenlight is robust compliance infrastructure and operational expertise enable us to continue delivering products that are packed regulated to customers.
Additionally, creating a competitive advantage that we believe smaller companies will not be able to leverage.
From a logistics standpoint.
We have the scale to work with alternative non <unk> and Fedex Terriers, if we remove the pack tax affected items in our business for sales orders under $4000, which is the threshold for shipping via freight and L. T O, which was not impacted by the fact that the overall business impact to our business is <unk>.
Only a couple million dollars or less than 5% of total sales for the entire year.
So to sum it all up for the small areas of our business that are affected Green Lane is already compliant with all of the pack deck rules and actually has an advantage due to our regulatory knowledge industry relationships expertise and scale.
I'm happy to take any questions on da Vinci or the pack deck in our Q&A session, but I want to now wrap up my discussion on our house of brands strategy by looking at slide seven where we will provide an outlook for our business in 'twenty two 'twenty three with our current portfolio of brands, including da Vinci, which we expect will close.
During Q4, we believe that with just organic growth alone.
We can achieve $70 million in Green Lane brand's revenue in 2022 and.
Over $100 million in Greenway brand's revenue in 2023.
This is a aspirational target that we believe we can achieve.
<unk> does not take into account any additional acquisitions, we may make to strengthen our product portfolio even further.
We expect gross margins from this portion of our business to be over 45%, which should help elevate our overall gross margins as we continue to grow our portfolio and as it comprises a larger part of the overall business to.
To that point, we're expecting our greenling brands revenue to make up about 22% to 28% of total revenue next year.
Of course, our Green Lane brands are not our entire business as mentioned at the onset. We also have another side of our business the industrial goods side, where we have great relationships with many leading operators and brands that complement our consumer goods side of the house.
Slide eight puts us all into perspective by highlighting our breadth strategy and opportunity, particularly with the Msos, who are continuing to rapidly scale and consolidate the cannabis industry.
Not only do we have strong customer relationships, but we also have very strong vendor relationships as well, especially with CSL, who we have been actively working with to block the importation of vaping products that infringe upon its parent company smores intellectual property.
Last month, we issued a joint press release with smart and Jupiter highlighting our support of a complaint filed by some more with the international trade Commission to defend against certain IP violations of T cells branded vape products.
Just last week, the ITC announced it has initiated an investigation of the alleged infringers as requested by some more.
In recent years, several vape manufacturers brands and retailers have produced and distributed products that infringe upon T cells patent and trademark right.
T cell brand has become synonymous with premium closed and vaporizers and many violators had been producing copycat and inferior products, hoping to ride the wave of seats of <unk> growth and prestige.
These violations not only violate T cells IP, but some are also potentially endangering the health of the consumer by pretending to have the same rigorous quality standards of DSO, we expect the ITC action and other IP enforcement efforts will create more awareness and action that will ultimately.
Prompt regulatory authority to clamp down on these alleged infringer, which should ultimately bring more business back our way now.
Now.
With that deep dive of our consumer and industrial goods units.
Let's quickly turn to slide nine for a brief highlight of our Q3 results before I pass the call to Bill.
Q3 was a transformational quarter for Greenway.
<unk> revenue increased 16% to $41 3 million compared to $35 8 million for Q3 2020.
And our Green Lane brands experienced another strong quarter of growth with sales, increasing 26% to $8 4 million in Q3 2021 compared to $6 7 million in Q3 2020.
This strong quarter of sales for our Green Lane brands. Despite the normal unexpected challenges of closing our merger still represented the second highest quarterly revenue contribution in company history.
Most importantly in Q3, we completed our transformative merger with <unk>, combining two robust innovative companies into one ancillary powerhouse with a best in class product portfolio, and a leading house of brands.
In addition to our differentiated and complementary product offering we also brought together two distinct customer bases.
<unk>, serving a much broader market than either company could have done alone.
Greenland today serves a premier group of customers, including 22 of the top 25 msos. According to the publicly traded.
Revenue tracker on new cannabis ventures, and many of the leading Canadian Lps the top smoke shops in the United States and millions of direct consumers worldwide.
Overall, a lot happened in Q3, but.
But we could not be more excited about the position, we're in and the massive opportunity within our reach.
We will continue seeking to acquire leading brands such as da Vinci that we believe can strengthen our product portfolio makes us stickier with our customers and drive higher gross margins.
We have a long road ahead of us to get this business to where we believe it can be.
But we have a solid roadmap in place for getting us to that next echelon of growth.
Q3 was nothing short of transformative for the company and for our strategic initiatives that we are putting in place in Q4, and we'll continue our positive forward momentum well into next year.
With our enhanced operations customer base and product portfolio, we are in a stronger position than ever to execute on our growth strategy and drive significant value for our customers partners and shareholders.
With that I will now turn the call over to bill to run through the financial results in further detail.
Thanks, Nick and Hello, everyone. We are excited to be reporting our financial results for the first time as a combined company.
As a reminder, the results I will be reviewing for you. This morning can be found in our earnings release that is available on Edgar and the Investor Relations section of our website at Investor Dot GNL in Dot com.
Turning now to slide 10, net sales of Green Lane brands grew 26% to $8 4 million for the quarter, making up approximately 24% of total net sales for Q3 2021.
Up 210 basis points from 18, 7% of total net sales for Q3 2020.
Green Lane brands revenue comprised 29, 3% of the total pre merger Green Lane revenue up from 25, 9% last quarter.
As Nick mentioned, we expect Green Lane brands revenue to continue to rise and ultimately make up roughly 22% to 28% of our net sales in 2022.
Total revenue grew 16% to $41 3 million in Q3 2021 from $35 8 million in Q3 2020.
Our United States segment net sales increased 29, 4% to $37 5 million for Q3 2021 from 29 million.
In Q3 2020.
The year over year increase of $8 4 million or 29, 4% was due to a $12 2 million or 304, 9% increase in S&P for.
Industrial goods sales driven by Kush Coast September sales, which mitigated the decline in E Commerce channel and drop ship and <unk> sales.
We along with many other importers of goods are continuing to experience supply chain issues for both Green Lane brands and other top selling brands due to record shipment backlog and container shortages.
These challenges have resulted in higher freight costs that we have been absorbing for some time.
But are now passing through to our customers for freight surcharge.
Phil there is a normalization of prices.
In addition to impacting our margins the shipping delays were also impacting revenue to a degree as it is taking longer to source products from overseas.
We are continuing to monitor our supply chain activities and are making regular adjustments to our purchasing to meet any anticipated changes in demand and product availability.
Our Canadian segment reported revenues of approximately $1 million for Q3 2021 compared to approximately $4 4 million in Q3 2020.
The decline in sales was due to an expected decrease in nicotine revenue sales as a result of our strategic shift away from low margin nicotine sales.
In Europe sales grew 21% year over year to $2 8 million, primarily due to an increase in b to B and third party marketplace website sales.
Europe remains an exciting growth Avenue for us, especially longer term as more countries continue to warm up to legalization like the states have done over the past five years.
Shifting gears, we will now take a look at gross profit which was <unk>.
$1 million or 3% of net sales in Q3, 2021, compared to $2 5 million or six 9% of net sales in Q3 2020.
As we announced via press release on November 3rd a onetime inventory rationalization of $8 7 million was implemented in connection with the closing of the Kush co merger.
Which adversely impacted gross profit.
Therefore on an adjusted basis, removing the effects of this rationalization gross profit was $8 8 million or approximately 21% of sales in Q3 2021.
The inventory right sizing initiative will facilitate a more efficient warehousing operation and will allow us to reallocate resources to higher margin top performing skus, such as our Green Lane brands.
It will also allow us to eliminate redundancies between our combined product portfolios. Our SKU count is getting tighter and we are becoming more judicious with our working capital, especially in light of the global supply challenges I mentioned earlier.
We're excited that we can not only streamline the business through this initiative, but also generate some cash in a non dilutive way by selling inventory that can fund, our organic and inorganic growth initiatives such as the da Vinci acquisition.
We expect our overall gross margin to continue to improve as we execute on our strategic vision with a heightened focus on our Green Lane brands.
G&A costs for Q3, 2021 increased to $15 4 million compared to $10 7 million in Q3 2020.
Primarily due to an increase in M&A expenses incurred with respect to the Costco merger.
Net loss attributable to Green Lane for Q3, 2021 was $16 3 million compared to $4 5 million in Q3 2020.
<unk> EBITDA was negative $6 9 million in Q3, 2021 compared to negative $6 3 million in Q3 2020.
We ended the quarter with $13 2 million in cash and working capital of $70 8 million compared to $54 2 million as of December 31, 2020.
We're continuing to be judicious with our cash position and our ability to opportunistically raise capital under ATM program.
We're being very thoughtful about how we use our balance sheet to fund our growth initiatives. We're very excited about having the ice and da Vinci teams on the Green 19. The ice acquisition has been well received and is creating positive value for the company as we expect the da Vinci acquisition will as well and we will continue to evaluate.
<unk> with a similar profile for potential future targets.
With the improvements in our operational performance. Following our recent merger. We believe this pivotal year has positioned us for a strong 2022 and.
And we are more excited than ever about the future for Greenland.
With that I will turn over the call to the operator and open it up for Q&A.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
If you wish to withdraw your question. Please press star two to leave the Q.
You asked that while posing your question. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone at this time, please hold a moment, while we poll for questions.
And our first question today is coming from Vivien <unk> of Cowen. Your line is live you may begin.
Great. Thank you.
Mr. Harrison Hunter on for Vivien today.
Just wanted to start on the integration apologies for the baseball reference here, but what inning do you think you're in in terms of completing the integration and how should we think about about the timing to achieving.
For the full benefits of the merger.
Just before we answer that question I, just wanted to make everyone aware of a transcription error on our non-GAAP reconciliation tables at the end of our earnings release, which we identified after the release crossed the wires.
The correct release was filed on the on our 8-K, but incorrectly transcribed when you look at the version on our IR Web site and we are working to resolve this as quickly as possible, but to set the matter straight. Please review the release in our 8-K are the PDF version on our website, which reflects the correct adjusted EBITDA number of negative <unk> <unk>.
$6 9 million now with that.
I can answer your question.
So integration wise.
We started this integration six months before the project closed for the deal closed with <unk> with.
With Kush I'd say, we're where we're in the middle of it but I don't know if its the fifth inning or the sixth inning, but we're in the middle of the <unk>.
The overall.
Integration, we've made good progress.
We're close to realizing our 100 day.
Our 100 day deliverables and we continue to move forward as you know, we announced savings of $15 million to $20 million and a 24 month period. So we did envision that that integration work would take.
Take some time to.
Wrap up but the bulk of those savings will be achieved in this first first 12 months of that project. So I'd say, we're in the middle of it and we're progressing well.
And just about coming up on our 100 day 100 day deliverables.
Alright, great. Thank you and then just following up on that $15 million to $20 million.
Cost savings target.
In the early stages have you identified any opportunities for incremental cost savings. So I know you talked about gross margin increasing from here.
Also in the mid of pretty women.
Pretty cost inflation there.
So can you just kind of talk about the balance between potentially incremental cost savings and how youre thinking about gross margin going forward.
Yeah. So the gross margin changes come from mix right and we continue to increase the overall mix of our.
Branded products and that will continue and Thats, where we believe the gross margin increases as we said in our call. We're charging some surcharges for freight to try to offset the impact of the logistic challenges that we're seeing in the marketplace.
On our previous call I had said that logistic challenges in and of itself can be between 203 hundred basis points weight on margin. So we are doing some things to change.
Freight pricing so we can add the surcharges and those those surcharges have already been implemented.
So we're doing our best to offset freight related costs, while continuing to change the mix. If you recall on the call Q2 I think.
Pre merger basis, our brands were at about 25% of our overall revenue and now they are about 29% from the pre merger Green Lane side that that percentage Youll notice is going to adjust downward given that we are bringing on the revenue streams from cush.
But overall that that revenue number will continue to.
To go up as we continue to transition to branded goods.
Add companies like da Vinci into the mix.
Okay.
Understood last one for me can you maybe.
You've talked a lot about the cross selling opportunity just as we think about further revenue opportunities can you, maybe dimensionalize or quantify a little bit further the opportunity.
Lies ahead of you in terms of selling across the Kush co legacy platforms.
And the green named platforms. Thank you very much.
Sure I can take that one yeah.
Look I think this is.
Pretty much the reason we did the merger in one of the main reasons is to leverage the cross selling.
Super excited now that we are developing this house of brands, which has been underway, but we're putting more of an emphasis on it but we're going to have a really robust portfolio of company owned brands on the consumer good side to offer to the vertically integrated Msos and single state operators that.
<unk> in our industrial goods division today.
Currently catering too so we haven't had that opportunity before.
Typically with the industrial goods business.
Going to be a little bit more competitive selling the T cell products, the packaging products, the energy products, such as ethanol and butane.
Margins are going to be lower these are very large customers and.
It's highly recurring.
Revenue that we can recognize and obviously gets much bigger over time as these msos in SSO scale and grow their overall revenue. So that's.
That's what we're tapping into here and we're able to then leverage that business, which is a great business, but it has a negative we're being a little bit lower margin, we're able to turn that negative into a positive by cross selling into those retail channels. Those same vertically integrated operators also have their own footprint of retail stores.
And by getting our company owned brand consumer goods into those retail stores were going to effectively raise the overall gross margin profile of those customers.
And it really allows us the opportunity to fill a void in the market.
Today, a lot of cannabis retailers have not taken advantage of offering accessories through their retail stores they've have consumers walking in everyday some stores are getting hundreds of consumers on a daily basis and for the most part they are just purchasing cannabis.
Our goal is to make sure that these msos and episodes have an opportunity to up sell their customer into accessories as well, whether it's a simple.
Rolling paper Vibes papers.
Grinders, our aerospace grinders or if it's something much more.
Robot like our own da Vinci products or some of our partner products like Pax Storz, <unk> bickel or Graco science right. So thats the goal its well underway, we have the relationships and now it's just about navigating we're seeing a lot of the Msos just now starting to move to more central buying for those retail products, whereas historically.
It's been one off store managers, making individual buy so as theyre looking to get more efficient with their retail business, they're starting to consolidate their purchasing so it's really perfect timing for us to have these conversations and to be able to offer this solution and we think over the next few years, we're going to be able to convert.
A significant amount of our customer base into carrying these goods and we're going to be able to.
Convert a significant amount of the consumer base from going to a separate smoke shop or specialty retailer to buy their accessories and allow that consumer to buy everything all at once when they go to purchase their candidates from our licensed legal dispensary outlet.
Great really appreciate it thanks for taking the questions I'll jump back in the queue.
Thank you.
Thank you. Our next question today is coming from Aaron Grey at Alliance Global Partners. Your line is live you may begin.
Hi, good morning, and thank for the questions.
So first question for me just wanted to go into obviously, highlighting the owned brands and a lot of opportunity there.
On the third party brands wanting to third party brands in our stores and vehicle called out in their public call via canopy, some supply logistical challenges that caused.
Global supply difficulties goes down 34% Q over Q. So I just wanted to know if you guys saw any impact there and you're basically how much and if you guys are seeing that for other products beyond just stores in vehicle that we're dealing with a similar ratio and you have to have an impact on sales for you guys. Thank you.
Yes, yes. It did go ahead Brad.
Overall like stores in vehicle for the quarter.
It was around $3 8 million in revenue previous quarter was $4. Four so we did see a decline and we saw a similar decline on packs in Greene co products as well.
So my perspective is that where we're seeing some impacts from the freight and logistics challenges.
It's almost spot on consistent with what what stores set in terms of their decline.
Yes, I'll just I'll just add to that thanks for the question Eric.
Look I think we.
The points to again, why we want to get more vertical with our supply chain right. We have great partners.
That we're going to continue to do business with of course and expand those relationships.
And probably focus a little bit more on R. R.
Premier partners, and probably take on a little bit less as we focus more on our own products, but owning our own supply chain right. We've spent now two years.
Almost navigating these.
Supply chain disruptions.
Speaking for myself going back with <unk>.
Also the Green line team, bringing in these goods since Covid hit so we have experienced we have a team in China.
That helps with sourcing we've got great factory partners, so again being able to own.
The brand ourselves and being able to control that supply chain I think just puts us in a better position to make sure that we're continuing to receive goods and be able to offer and sell goods to our customers.
During this very trying time when it comes to import.
<unk> and freight and all the other challenges.
Alright, great. Thanks for that color. That's helpful. And then second one for me.
Just on <unk>, so more filed with the ITC a patent infringement ITC now looking and investigating into it. So I just wanted to get some color in terms of maybe potential indirect impacts you guys are seeing it looks like there was a notable amount of your competitors on the T cell side our named.
Within the infringement filing so are you guys seeing anything indirect whether or not in terms of.
Msos, maybe coming to you who had gone towards.
The competitors that had lower price offerings. When we spoke with you in the past or maybe any outcomes you might look to see over the next year or so as the ITC investigates thanks.
Yes look we're already seeing some positive momentum I think operators are becoming increasingly.
Aware.
And concerned about their supply chain right given what we were just talking about with all the global headwinds.
So this is one more thing to add to the plate.
You're a multi state operator single state operator, and Youre growing and this is an important category for you which is virtually across the board for everybody.
You got Chinese new year and.
Why coming up <unk> got all of these global.
Challenges and now you have the IP enforcement action that.
Include this ITC claim is one of several actions.
Thats more.
And us as a partner taking so you just don't want to necessarily enter into that kind of risk.
With such an important part of your supply chain and so we're seeing conversations happening from folks that were previously more concerned about price.
Are becoming now less concerned about price and more concerned about reliability, which is exactly what we've been able to offer with what we're doing with T cell over the last several years a trusted solution.
Best in class quality. So those conversations are underway I think people will still continue to take advantage of maybe some of the lower priced options until those options are completely shut off which we believe will.
What will happen if the ITC.
Review of successful in our favor so I think it's going to be slow progress, but definitely some progress and some upside for us here in the near term and then certainly.
Significant very meaningful upside in the long term as well.
We get the infringing products off the market hopefully and.
We're able to be able to provide the best in class T cell solutions across the board.
Alright, great Yeah, and if you look at our proxy with the.
Philip Morris.
Similar filing it looks promising for you guys. Thanks for the color there and I'll go and jump back in the queue.
Thank you thanks, so much Eric.
Thank you. Our next question today is coming from Scott Fortune at Roth Capital. Your line is live you may begin.
Hey, Good morning. This is Nick on for Scott first question for me I'm, just looking for some color on the product uptake side.
That impairment as you work to realize efficiencies on the inventory side, but can you call out any skus of emphasis that have seen good consumer and <unk> uptake here and kind of how that influence future product rollouts.
Yeah, I mean, I think look it at a high level.
This is this is a company getting more focused.
We'd love to be everything to every one but given the current capital environment.
We realize that we need to be a little bit more focused on what we do and so moving to company owned brands is certainly the right strategy. If you think about what we laid out the ability to organically grow to $70 million next year potentially with 45% gross margin I mean that.
A portion of our business, which we said, it's only going to be 22% to 28%.
But that portion of our business alone.
Arguably.
Got you the analysts right, but arguably could be worth more than our entire market cap today right. So given given the pressures that the whole sector space and the pressures that.
The Green line stock as Fay.
It doesn't make sense to continue to invest in a lot of things that are on the periphery all right.
Partner brands.
We're selling that maybe we don't see.
Long term viability and maybe the margin profile isn't where it needs to be maybe the the demand for the product has has slowed down considerably. So those are the good that.
So we decided to discontinue that just didn't fit in our strategic plan going forward and ultimately that's going to free up cash to be able to invest in the good do fit into our strategic plan, namely the.
Company owned consumer brands, and we'll be able to then ensure that we have product I think we were just talking about the supply chain issues.
We're going to have to outlay more capital to ensure that we have the product to build our own brands as we embarked on the strategy. We don't want to be in a situation where we are.
Outline significant investment in terms of marketing and sales and then only to fall short because we don't have the supply so getting more focus buying the right goods buying the highest margin highest value goods as all part of.
This change in our business and so we did take the onetime charge, which we think will be ultimately in the long term in the best interest of the company and up everybody involved as we strategically make this pivot toward a much more valuable business.
Okay. That's great I appreciate that color and then just turning to the E. Commerce side you operate several different platform servicing different segments. Here I was just wondering how you look at potentially consolidating those that may have some overlap just kind of how you look at your E com footprint from an efficiency standpoint, moving forward here.
Yes, great question, we have.
Very robust E. Com plan through 2022 that is going to be one of the areas that we are going to be making additional investments as we pulled back on some of the other areas that I just said so.
As we have a much stronger house of brand portfolio, especially with the da Vinci acquisition coming into the fold here in the near future.
We want to make sure we're investing in our direct to consumer relationships.
e-commerce and sort of.
We have right now a few sites that are more.
Robust in terms of the offering like vapor dot com.
And so we want to maybe consolidate those down into one very robust E. Commerce site, and then separately have direct to consumer purchasing available through the individual brand websites. So we need to build brand content and we need to offer the loyal consumers that have identified with those brands the opportunity of Baidu.
From the company. So that's kind of at a very high level, our strategy for E comm, but yes. It is going to it is going to evolve.
Definitely optimizing streamlining.
And reducing the amount of e-commerce properties, but becoming very good I'm very effective.
Managing likely one.
B to C.
Larger website and individual brand web sites that can offer that DSC experience that we're seeing.
Trending across all consumer segments here today in the country.
Great. That's it from me I appreciate the color.
Thanks for the question.
Thank you. Our next question is coming from Derek <unk> at Jefferies. Your line is live you may begin.
Hi.
Thanks for taking my question guys.
That's on the merger.
Just for me.
Related to the da Vinci acquisition.
This new focus on the higher margin proprietary brands.
I guess sourcing these types of different brands.
Where are you guys looking to.
See that.
Either through your existing distribution relationships, we're looking outside and then I guess.
The continuation of your distribution relationships with third party brands I think that was probably a good pipeline for you guys.
Define these proprietary brands that you want to bring under your Green Lane brand umbrella. So.
Color on that would be would be helpful.
Yeah, Great question. Thanks for thanks for asking.
Look I think.
We have factory relationships already I mean these.
These brands.
That we already own we've been producing product, we're going to expand and fortify that we think there's opportunity for cost decrease we think theres opportunity for quality increase we think there's opportunity to potentially migrate some of the production out of high tariff.
Logistic regions like China for example.
Pending on the product set so we want to make sure we have redundancy, we want to make sure we house.
Yeah.
A clear path to being able to scale the production and the manner needed as you see our aggressive growth plan of these brands going from.
<unk> $45 million, a day up to 70% and then up over 102023. So we have to prepare for that from a from a supply chain standpoint, Luckily we have a world class sourcing team as I mentioned.
With team members in China.
We've done a good job of that historically at both companies, but as we come together here again part of the benefit of getting more focused is we're going to be able to really put our energy and resources behind the supply chain specifically more for these company owned brands, yes that does come with a reduction of.
Sort of the broad assortment of brands.
Historically carried and we're going to be much more opportunistic about.
Which brands.
We decide to do business with and again, we're probably going to look to do more business with with a fewer subset of brand partners.
Then we have historically.
Look I think that could be.
More permanent that could be.
It's something that we end up shifting.
Back towards sort of the capital markets improve or for cannabis for Greenway.
It is a little bit fluid, but we still have a pulse on the market. We still have relationships we have a lens.
We're talking to store owners, we have a field sales team. So we're able to get that visibility and data and to the extent, we want to make more acquisitions.
Still we will have a pipeline that's <unk>.
Currently.
Actually still fairly robust and probably going to expand just just naturally but again, we have to be conscious of.
Sort of the dilution effect rate, we know that.
There's opportunities to buy companies, but.
If the market's not valuing Green Lane.
Where we feel that we should be valued given our company owned brand portfolio, it's going to be much harder for us to be aggressive on the M&A front. So we've got to stay nimble and like I said, we have a pipeline I think that will continue to grow organically, even even as we move away from the proliferation of third party brands that we have historically offered.
And as we get more focused.
Our own categories. If you look at our portfolio of brands.
With da Vinci, we now have most of the mainstay categories right. We have the glass, whereas in accessories with higher standards you can keep paring got the grinders with groove in aerospace now the vapor is just coming on with da Vinci and of course by drawing papers in the paper product category that we offer there we've got the silicone products with high so as you see.
We're building out the different categories and I think really when we look at.
Opportunities that maybe hey, what's an adjacent category because it's something that we're already doing we can make those investments ourselves as we have been doing and we just had a very successful product launch with ice.
<unk> flex intellectual property, it's a wonderful product if you haven't seen it it looks like glass, but it's actually silicon.
And we expect to be able to do more of that organically. So really we're moving to a scenario, where we can control our own destiny much more so than we have historically.
Green Lane or Costco.
And that feels really good, especially as we're in this uncertain environment.
And we're looking to get profitable right and the strategy is going to allow us to significantly enhance our margins.
Awesome, Thanks for the color.
I appreciate that and then just a final question for me just touching on Canada.
Massive declines makes sense of shifting away from low margin nicotine sales, but is there anything else that's.
Driving that.
Client in Canada, and I guess is there another is there a strategy going forward and how to recoup that loss sales from.
From the low margin nicotine.
Look we've had our.
To be honest, we've had some internal issues right. So some of this is.
Stuff that we can just do better as a company and we intend to.
So I think naturally we will be able to win back.
Business in that market it is a tough market.
We're seeing it.
Especially on the industrial goods side, we're seeing some of the larger Canadian Lps report. So I mean, we're all seeing the same data right on the consumer goods side, it's a little bit different you mentioned that the move away from nicotine that certainly was a big driver of growth for Green line historically in Canada.
And juul being extremely popular product in the payday.
That shifted as well so we.
We haven't we have to reevaluate our strategy a little bit we've got to execute better in Canada.
Again, as we move to more focus on our company owned brands, Canada is a white space for US we don't sell a lot of our own branded products in Canada. So there are some strategies that we're looking to be able to help accelerate that.
Our footprint in Europe, as well, which we see as the.
Sort of next great cannabis frontier.
But also as we get more focus there is plenty of opportunity right here in our backyard here in the U S. So we have to we have to balance how much energy effort and resources, we spend in these international markets. When we're sitting right here in the largest cannabis market in the world in the U S and we have relationships with the biggest players and we.
Have opportunity to cross sell all of our products.
So that's going to be a little bit of a dance, we do and again I'm going to continue to be influenced by.
Capital and access to capital, we want to be very mindful of the cost of making those types of investments.
And make sure that.
If we're going to take on that cost that we can fund it with the working capital we have or leveraging.
Some some less dilutive measures.
In terms of accessing data or other things like that.
Unless the opportunity and risk reward is that right and then and then we may make those investments ourselves.
Okay.
Alright, thanks, so much Nick and I'll jump back in the queue.
Thank you so much.
Thank you.
We have no further questions in the queue at this time I will.
I'll now turn the floor back over to Nick for any closing remarks.
Okay, great well. Thank you again for joining Greenland conference call today, I would also like to sincerely. Thank our team for all their dedicated hard work going through a merger like we have sort of refocusing our strategic goal for our business and theres been a lot.
Change the Green line, our team has done a phenomenal job embracing the change getting excited about the future, we're certainly more excited than ever.
Was honored to be able to deliver the first conference call as CEO of Green Lane and I look forward to many more thank you guys for tuning and look forward to updating you on our progress and giving you. The results on our next earnings call. Thanks, and have a great rest of your week.
Thanks, everyone.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day, we thank you for your participation.