Q4 2021 Greenlane Holdings Inc Earnings Call
[music].
Good morning, and welcome to today's conference call to discuss Green Lane Holdings fourth quarter and full year 2021 financial results.
A press release detailing the financial results for the quarter and full year ended December 31, 2021 was distributed yesterday afternoon and is available on the Investor Relations section of the Green Lane website at Investor <unk> Gn Ellen Dot com.
As a reminder, today's conference is being recorded.
A replay 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 Jan L N Dot com.
On the call today are Nick Kovacevich, Chief Executive Officer, and Bill Mote, Chief Financial Officer.
Before we begin Green lane would 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 March 31 2022.
Factors that could cause <unk> results to differ materially are set forth in yesterday's press release and in Green <unk> Annual report on Form 10-K 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 included adjusted SG&A and adjusted EBITDA.
Green Lane has included a reconciliation of these non-GAAP measures in Yesterdays press release, which is available in the Investor Relations section of the Companys web site at Investor that Jan L N Dot com.
I would now like to turn the call over to Mr. Nick <unk>, Chief Executive Officer of Green Lane. Please go ahead Nick.
Thank you operator, and good morning, everyone I'd like to thank you all for joining US here today to hear the latest about Greenland.
It's been an eventful last few months as we've been making meaningful improvements to the business and we're excited to share. Some of these updates today on our operations and strategy going forward.
I'll start first by providing a high level overview of our results for the fourth quarter and full year of 2022.
Then I'll turn to some of our more recent developments and how we believe these will translate into a leaner more profitable and more sustainable Greenway.
After that I will turn the call over to our Chief Financial Officer, Bill Mote for a more comprehensive review of our financial results before then opening 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 yet already.
2021 was one of the most pivotal years in Greenland 17 year history, not only did we complete our transformational merger with kiszko, creating the industry, leading ancillary cannabis company and how is the brand, but we also strengthened our green Lane brand portfolio with the acquisitions of ice and da Vinci, which give.
US a strong platform heading into the year two.
<unk> 2022 has been off to a strong start building on the progress we made last year, most notably through the introduction and implementation of our 2020 plan to streamline the organization and reduce our cost structure and capitalize the business in a non dilutive manner.
I'll be going over this plan in more detail shortly.
While the overall cannabis industry is facing headwinds in the form of inflation supply chain disruptions and stock price declines.
We are doing all that we can to weather this storm to accelerate our path to profitability and to ensure we have a stable and scalable business that can drive meaningful profitable growth in the long run.
To that end Q4 represented another step in the right direction.
Net sales for the quarter grew 54% year over year to $56 million, which included a full quarter of <unk> sales for the first time. It is important to note that sales would have declined year over year. If <unk> sales contribution was removed due to a decline in lower margin third party sales. However, we are pleased that we have.
Essentially shifted away from these lower quality sales as they are no longer a part of our core strategy and we are instead focus more on our proprietary and higher margin Green Lane brands.
Sales of our Green Lane brands was up 17% year over year to $7 4 million for the quarter, which was due to higher sales of <unk> five as well as the inclusion of da Vinci and ice compared to the same period last year. It goes without saying that growing our brands remains a key focus of ours as it helps expand our.
<unk> moat, our margins our revenue and our profitability as we look to become the leading house of brands and the ancillary cannabis industry.
Gross margins for the quarter were 22% up from 17% in Q4 last year with the increase being driven by a reduced reliance on lower margin nicotine and third party brands as.
As we continue to shift away from these lower margin brand and focus more on our higher margin Green Lane brand. We believe this should help offset some of the inflationary pressures, we're seeing in the market and ultimately pave the way for higher gross margins going forward not to mention we are slowly passing on increased freight.
Cost to our customers while container rates in general are gradually starting to come down.
With that brief overview of the quarter and year, let's now turn to slide four where I'll be spending a lot of my time today talking about our recently announced plan to capitalize the business focused on our Green Lane brands and accelerate our path to profitability as we shared via press release earlier. This month, our plan is essentially twofold.
One to reduce our quarterly cost to become profitable much more quickly and to to capitalize the business in a non dilutive manner.
Now I'll spend time going over each of those.
Starting with the first objective we are targeting to achieve positive adjusted EBITDA by Q3 2022, driven in part by our reduced cost structure, specifically, we will be working to lower our adjusted SG&A, which is SG&A, excluding depreciation and amortization to between.
$14 million and $16 million by Q3 of this year. This is a roughly 40% reduction in quarterly costs from the $26 6 million, we reported last quarter and a level that we believe is sufficient to successfully operate the business and become profitable.
Supporting this lower cost structure is the reduction in force, we announced earlier this month, which we expect to result in approximately $8 million in annualized cash compensation savings will also be focused on reducing our facility footprint worldwide and adjusting our go to market strategy to further reduce costs and.
Operating liquidity.
For those of you who have followed or familiar with <unk> story. This is a similar playbook to the one cuzco employed back in 2020 at the start of the COVID-19 pandemic, helping <unk> become adjusted EBITDA profitable within three quarters of announcing their cost savings plan.
Of course until we reach profitability and are able to generate positive cash flow, it's important to conserve and build on our current cash levels, which brings me to the second part of our plan, we understand that raising equity capital at these current depressed stock levels is not.
The right primary strategy, we also understand that issuing equity to acquire businesses trading at higher valuations than Green line is also not the right strategy.
Therefore, we are putting a pause on acquisitions at this time and focusing on generating liquidity and non dilutive ways to support the business.
Slide 2020, and parts of 2021, we expect 2022 to continue being a challenging year for the cannabis industry as capital has dried up and inflation continues to ramp and companies like Green Lane focus on getting their businesses profitable and cash flow positive as soon as possible in fact at recent investor.
Conferences, we've been attending the main message from investors has been to batten down the hatches.
We need to continue optimizing the business to thrive and we will look to execute this plan quickly and effectively.
We plan to sell some noncore assets too, including our headquarters.
Have been and will continue to raise prices on some products that we believe have price elasticity and that we know our consumers can absorb.
Not to mention we are discontinuing sales of our non strategic lower margin third party brands and we are selling the existing inventory of those that we still have which will further increase our liquidity and improve our working capital.
Naturally we expect a minor decline in total revenue from discontinuing. Some of these third party brand relationships, but we believe the overall quality and margins of the revenue that we will generate going forward will be far more favorable and sustainable.
And given that we are employing all of these cost reductions we will have a considerably lower breakeven point than before requiring a lower overall sales level than if we continued to keep some of these brands in the portfolio.
In short.
If we continued down the path we were on we may not have been in a position to achieve profitability until next year.
Now with a significantly reduced cost structure healthier margins and modest sales expectations. We are in a position to become profitable on an EBITDA basis by Q3 of this year.
As I discussed on the last call Green Lane has done a great job, even before the <unk> merger of shifting the business away from selling purely third party products to developing and growing its own portfolio of proprietary owned brands, which command margins much higher often beats.
<unk> 40 and 65%.
Since we closed the merger we have been accelerating this strategy and now it's time to kick it into another gear as we reinvest the proceeds of these sales back into growing our brands.
And growing our higher margin products.
With the introduction of this new plan, we are retracting, our previously communicated 2022, and 2023 sales targets for our Green Lane brand given the challenges of forecasting growth rates. In this current climate. However, we will be shifting our focus to getting some of these brands and products into traditional consumer retail channels, such as Amazon Walmart.
And Google.
Since we are an ancillary business that doesn't touch the plant we have an opportunity to get an early foothold in these large marketplaces and leveraging the expertise of our new Chief Commercial officer, Craig Snyder, who has successfully penetrated these channels before and the ancillary cannabis space. We believe this give.
US a significant competitive advantage and expanding the customer reach of our owned brands.
And finally, we are currently looking to secure an asset based loan or similar non dilutive instrument that will support our working capital needs. Even further this process is currently underway and we hope to provide additional details in the near future.
Altogether, we expect these strategic measures if successful to generate liquidity in excess of $30 million, which we believe is sufficient to bridge the gap into profitability.
It is imperative that we act quickly and decisively.
And we are wasting no time to get this business profitable and in a position to scale meaningfully once market conditions begin to improve.
With that I'll now turn it over to bill to run through the financial results in further detail.
Thanks, Nick and Hello, everyone. Thank you for joining us on the call today 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 five net sales grew 54% to $56 million in Q4 2021 from $36 3 million in Q4 2020, the increase in net sales as Nick mentioned was largely due to the inclusion of <unk> sales as a result of the merger that was completed on August 31 2000.
'twenty one.
Looking at our two new segments sales in our consumer goods segment totaled $24 9 million for Q4 2021 compared to $32 7 million in Q4 2020. The decrease was due to a reduction in sales of lower margin third party brands as part of the company shift in strategy to focus on it is higher.
Margin.
Prior Terry Green Lane brands.
Sales in our industrial goods segment totaled $31 1 million for Q4 2021 compared to $3 6 million in Q4 2020. The increase was due to the merger with Costco that was completed on August 31 2021.
Net sales for our Green Lane brands increased 17% to $7 4 million for the quarter.
As we mentioned on the last call, we and many other importers of goods continued to experience supply chain issues for both Green Lane brands and other top selling brands due to record shipment backlogs and container shortages. These challenges have resulted in higher freight costs that we traditionally absorbed but we have recently begun.
Passing through to our customers a freight surcharge. Fortunately, we are starting to see a dip in container prices as Nick mentioned, but we will continue to monitor our supply chain activities and make regular adjustments to our purchasing to meet any anticipated changes in demand and product availability.
Turning now to gross profit, which was $12 5 million or 22, 3% of net sales in Q4, 2021 compared to $6 2 million or 17% of net sales in Q4 2020.
The increase was due in large part to a reduced reliance on lower margin nicotine and third party brands as.
As we continue to prioritize scaling our Green Lane brands, we expect our overall gross margin to continue to improve.
SG&A costs for Q4, 2021 increased to $24 million compared to $17 3 million in Q4 2020, primarily due to an increase in M&A expenses incurred with respect to the Costco merger and other acquisitions.
On an adjusted basis, which excludes depreciation and amortization SG&A for Q4, 2021 totaled $21 7 million compared to $16 7 million in Q4 2020.
Net loss for Q4, 2021 was $11 2 million compared to $10 9 million in Q4, 2020, and adjusted EBITDA was negative $6 6 million in Q4 2021 compared to negative $7 2 million in Q4 2020.
We ended the quarter with $12 9 million in cash and working capital of $53 8 million compared to $54 2 million as of December 31, 2020, we're continuing to be judicious with our cash position and have the ability to opportunistically raise capital under our ATM program.
We are being very thoughtful about how we use our balance sheet to fund our growth initiatives and we believe the recent plan. We have begun implementing will help us generate sufficient liquidity to support the business as we transition to profitability.
With the introduction of this plan.
We believe we are on track to achieve positive adjusted EBITDA in the third quarter of this year, giving us strong and sustainable platform for profitable growth heading into 2023.
With that I will turn the call over to the operator and open it up for Q&A.
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.
Ask that while posing your question. Please pickup your handset is listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Yes.
Your first question for today is coming from Vivien <unk>. Please announce your affiliation and pose your question.
Hi, Good morning, Gab begin Nathan from Kelly.
Good morning team.
So, let's just start on kind of the macro backdrop and how that influences your thinking around the Green Lane brand. So obviously prioritizing those brands have higher margin.
But you've acknowledged.
Some of the macro headwinds so as you think about the outlook for that business through 2022, do you think that will be more susceptible to a softening consumer environment. How do you think about that thanks.
Okay.
Hi, Vivien thanks for the question.
To answer your question I think we're still very confident on the year obviously.
The supply chain stuff and some of the consumer demand stuff discretionary spending et cetera.
Could come into play so that's why we're hesitant to.
Nail down the exact predictions of where we think will land, but we think we can manage through we do think our products.
Have a have a range right. So on some products Theyre very high end.
Would obviously be impacted.
Bye.
The inflation.
Headwinds against consumer spending, but on the flip side, we are developing a pretty robust line of products that are geared more toward.
An economy spender products that are going to be sitting in C stores that should have pretty high velocity.
Additional add on products that should be sitting on countertops and registers at cannabis dispensaries and retailers.
So these products should continue to turn.
Products like <unk> papers.
People are people are going to continue to buy these no matter what.
So again, how that kind of all rolls up to total revenue, we're not in a position to predict that right now, but we are confident in the business and the strategy and we have an innovation pipeline that has some products that are.
Very innovative and going to be more on the expenses side, but it's also filled with a line of products that are more economy related and we'll we'll turn volumes this year.
<unk> of the macro climate it from our perspective.
Understood that makes good sense.
And then just thinking about your business.
Pieces relative to the Msos, obviously you guys.
Can you tell your products nationally that's not true of a multi.
A multistate operator, but the commentary broadly next I'm sure you're well aware has been pretty cautious.
Around <unk>, which is essentially done at this point.
And heading into Q2, it seems like there could be a slowing in door growth and certainly.
A delay in terms of the catalysts around New Jersey.
Are you hearing from your NFL partners is the more challenging backdrop with them, creating some caution around ordering patterns with you is it changing mix of what youre seeing from an ordering perspective. Thanks.
Yes look I think there's a lot of dynamics, there and obviously you're well in the loop following it very closely as are we.
We are hearing.
A lot about companies trying to consolidate and streamline their supply chain. We think this plays to our favor we think we have the.
Most robust.
In terms of breadth and depth offering.
And we're seeing from the Msos and some of these leading players that they are looking how can we get more synergies right.
They have traditionally done business with Green Lane on one of our sides of our house right, whether the consumer side or the industrial side.
They're talking about how to how can we potentially consolidate that and get more cost savings and more synergies to our business.
Great thing for US right plays right into our our cross selling strategy.
We can deliver a lot of value to these clients given the current climate and the things that the challenges that they are dealing with so.
So we think we're well position of course.
We're going to do better as the industry does better so as the volumes grow obviously, that's going to be good for us.
To the extent the volumes are down.
That obviously means some of our sales will track that right, especially the packaging and <unk> stuff and the energy stuff.
So it's a bit of a mixed bag there, but I think we're really well positioned given our diversity given the value proposition. We can offer given the fact that we have.
So many different channels of trade that we plan right. For example, I mentioned the C store, that's all brand new.
C stores, Werent really taking cannabis accessories serious.
Two or three or four years ago.
Now they are all taken a hard look given the consumer demographic.
Purchases these types of products right. So that's all upside we just brought on Craig Snyder.
Who we talked about having a background in direct to consumer.
Using platforms, like Amazon and Walmart and Google.
And again, that's all upside for us because thats not been typically a big part of our business. So.
I think the way that we position ourselves and diversified ourselves really.
Bodes well for kind of facing the current climate and we know that ultimately the volume will ramp in the cannabis space and so even if pricing comes down right that will bring revenues down.
Slow the growth of revenues, but not necessarily units right and so if we're selling packaging and we're selling T cell products.
And we've always said this right.
It's great.
Msos can enjoy really high margins in some of these markets.
But we know that these markets are going to fluctuate and as long as consumer volumes continue to go up and theres more consumers buying cannabis.
That means there's going to be more sales of.
The types of products, we sell especially on the industrial side. So again, I think we're really well positioned.
There's a lot of things are going to kind of play out and some will be negative.
And some will be positive, but I think the net result is.
Still going to be positive for Green Lane on executing our growth strategy and getting the right products into the marketplace.
Understood Yes.
Good call out.
That is certainly an untapped opportunity for you guys last one for me before I turn it over.
On the 30 million of liquidity that you aim to generate can you just dimensionalize like what proportion or percentage of that is on kind of non candidates touching asset. So look I would think headquarters non cannabis touching and so the thing I'm trying to get at here is absolute liquidity youre trying to generate given the capital constrained in <unk>.
<unk> and cannabis.
That the probability of success would be very different on non cannabis related assets like your headquarters versus more cannabis related assets. Thank you.
Yes, so look just to simplify it and is it just.
Ballpark numbers, but if we're going to use 30.
Divided into three buckets right like a 10 10 10.
Ken would be from the sale of assets. The majority of that 10 would be from selling of our headquarter building.
We expect to also be able to drive a few million dollars from the sale of some of our noncore.
<unk> assets.
Remains and things like that that we own so.
We believe that total bucket is about is going to be 10 or potentially a little bit more.
We know we can operate this business with far less inventory, we are discontinuing some of the third party lower margin.
So we've historically carried and so when you look at starting the year with $70 million of good inventory in our warehouse.
Finishing the year with our plan.
Somewhere below $60 million right, it's not a not a monumental task.
<unk>, probably run this business with 50 or $55 million of inventory.
So all we're saying is let's.
Sell through some of this inventory, let's free up $10 million of working capital vis vis that process. So there you've got 10 from the asset sales you've got 10 from the inventory reduction and then we're expecting to get more than 10, but let's just say at least 10 on the ABL facility that we're going to market, where we have sufficient.
Collateral.
And to be able to secure a facility we believe in the in the $20 million to $30 million range, we have.
$8 million bridge loan that we do need to pay off so if you take.
$20 million facility minus the eight that's how you get your third 10, and so thats, how you get to the 30.
And again I think given the fact that this is predicated on a building sale on selling through inventory, which is part of our normal course of our business and securing an ABL with sufficient collateral. We think that's very achievable to drum up that full 30 plus million in liquidity.
Understood. Thank you for that detail.
Thank you.
Yes.
Your next question for today is coming from Aaron Grey. Please announce your affiliation then pose your question.
Hi, Thank you, yes, Aaron Grey of Alliance Global partners.
So first question for me.
Nick one of the things we talked about at the start of the merger was kind of one of the top line opportunities in terms of selling some of the Green Lane accessory products.
And two dispensaries, which legacy Costco had a lot of relationships with so obviously you guys have a lot of play right now in terms of integration as well as some.
Some of the SG&A cuts you announced so can you just give us an update on where you stand there in that initiative is that kind of taking a break while you focus on these other things.
Can you give us an update in terms of both kind of the counter side opportunities with more of the vibes in papers as well as the opportunity for some of the larger price products, such as the bonds and otherwise in selling those into the dispensaries. Thank you.
Yes. Thank you for the question Erin.
It remains a focus despite everything else we have going on I think we were very pleased to get through.
The bulk of the integration be able to make the cost cuts and announce the strategic plan for 2022, I think that was a big lift kind of getting to that point, we announced on March 10th.
And along the way we've been kind of setting the stage for more aggressive cross selling and the nature that you discussed and we've seen some early results. Some small wins we're building traction these are.
Bigger more enterprise level of discussions that we're having.
We're already selling consumer products to a vast majority of the msos.
But what we don't want to just be a vendor that is.
There to provide certain products.
At various times, we want to be a partner.
We want to provide a comprehensive solution and part of that is.
Bringing in displays.
That can sit at the register are can sit in the cannabis retail store.
We have some of those coming over.
Via boat right now.
It took a little bit longer with some of the supply chain. So we're getting traction with the skus, but the more comprehensive.
Larger programs that we intend to implement with leading msos.
Some of that stuff is coming in the near future. So everything.
Is moving in the right direction.
Albeit a little slower than we like.
But extremely positive signs great upside and again very synergistic to the rest of our business as well so as we land some of these opportunities it drives.
More efficiencies that drives better.
That our top line and more meaningful.
I guess stickiness so to speak with these with these clients. So we're super excited and again, we feel great about where we're at and we want to get this throughput.
And to the market as quick as possible.
To the extent, we can control it right.
Alright, great I appreciate that color and that makes sense.
Second question for me in terms of the disc.
Discontinuation of sales for somebody of third party products.
So number one Green Lane had historically had a lot of reliance on smoke shop channel right. So.
As you'll need a pretty large sales force given it's so fragmented. So number one can you talk about some of the cuts you're making some of those within that salesforce that youre not going to have those third party brands that sell through and then number two can you talk about maybe initiatives you have in terms of still selling your own products into that and how much overlap those third party brands.
With your own proprietary.
And then just kind of your overall kind of like channel mix going forward, whether or not you're still going to have as heavier reliance.
Those smoke shops, or maybe shifting more into an e-commerce and C store.
Shanghai as you were just kind of mentioned before thank you.
Yes, great question and our channels are evolving and we're looking to skate where the puck is going right and you can look north of the border to Canada and you can see.
A considerable amount of shift in consumers from purchasing these types of products traditionally smoke shops to now purchasing them at cannabis retail why.
Why is it accelerated so quickly in Canada versus here in the U S. While it's simple because the margins on candidates have come down considerably in Canada and the competition amongst retailers has increased significantly in Canada. So when you have those dynamics, which we know will play out in every market in the U S over time.
You have smart retailers, saying, how do I differentiate myself from my competition and create more value for my walk in consumer and simultaneously, how do I offset the cannabis margin degradation and you look at these ancillary products that typically garner significant margins, sometimes a keystone type <unk>.
Margins right.
So we've always had that thesis we're seeing it play out in Canada. We know it's going to continue to play out in the U S and globally over time, and we're really well positioned being one of the leading providers of these goods focused on that channel of trade. So yes, we're going to be very focused on dispensaries in cannabis retail going forward.
<unk>.
We know that there will be a shift from smoke shop to those channels over time.
We're going to continue to service the smoke shop channel, it's still a very vibrant channel, especially in a lot of markets in the U S, especially in markets that don't have legal cannabis stores in the U S. So we're going to continue to do that we're also going to leverage sub distributors to do that for us traditionally green light has been more of a seller of third party products.
But when Youre a seller of third party products.
You're now going to sell to another third party to then sell to the retailer it doesn't quite work as well now that we own our own brands.
It's a very vibrant channel for us being able to use sub distributors to help build those brands and get them into brick and mortar smoke shop had shopping alternative retail C store, which we've already talked about.
Bright new horizon.
And we're making some great inroads there.
We're very pleased to have our <unk> products represented seven elevens throughout the southeast.
So we're making some traction there and we expect to be able to sell through some of our other products that are.
Viable for that channel.
And then as I mentioned, we have Craig, helping us with the Amazon, Google Walmart, all the marketplaces and getting a set of our products not everything can go on those channels today.
But green line has proven as a pioneer in the industry that we were able to list on NASDAQ before other companies where.
We were able to get the.
Fedex.
Sorry, the USPS <unk> exemption before other companies in this space. So we are confident that we'll be able to get our products more of our products. On these platforms ahead of other people in this space, given our compliance and regulatory knowledge and Knowhow.
So we think those are kind of the channels that are going to drive. This forward, we're not going to abandon the smoke shop had shop channel, but we're going to recognize where we see a majority of the sales shifting over time and as.
A seller of our own consumer brands.
Any consumer brand company in the World is focused on direct to consumer and focused on using platforms like Amazon. So we don't want to be any different.
Although we do have our unique challenges being in the sector that we are and again I think we've proven over time that we are more capable of navigating those challenges.
Virtually any other company out there so that's.
That's the answer on your question about the channels and then the part of your question about the brands.
We are going to be rationalizing a lot of the smaller brands that we've typically sold and distributed.
We are going to be keeping some.
Some of the larger more notable brands that we.
Historically worked within that represent a large portion of our business. So this would be brands like CSL Storz, <unk> Bickel Pax graco.
And those are some of the more notable larger ones and then there's a couple of the other smaller ones that we will keep in the portfolio but.
We're going to look to.
For similar products.
Within our own brand right. If there is an opportunity to.
Launched various grinders or.
Pipes are.
Other accessories that typically we've maybe sold under someone else's brand.
Launched that under our brand and let's capture the full margin profile. So we intend even as we consolidate down in terms of the brand we still intend to have.
The majority of the offering that we had before it just won't necessarily be someone else's branded product it'll be a green lane branded product if that makes sense.
No that makes a lot of sense and that's really helpful color I appreciate that and I'll go ahead and jump back in the queue.
Thank you Eric.
Your next question is coming from Owen Bennett. Please announce your affiliation then pose your question.
Good morning, John <unk> Jefferies <unk> co.
Hopefully with questions. Please first one just on the strategic Maggie is helping to get a bit more color on what the non core asset.
And then just how much of that business.
Lower margin policy bonds currently please.
Yes so.
The noncore business assets that we're looking to sell or exit.
Comprised of some of our business units.
That are tied to e-commerce operations.
Drop shipping.
Business unit that we have there is some domains that we have so again, it's stuff that kind of doesn't fit within our core.
Selling across the channels that we just outlined.
<unk> direct to consumer.
So.
And these are channels that aren't as efficient for us and we're also going to be.
Restructuring, our European business as well.
Because that market, although it represents.
Significant opportunity in the future as it matures.
Right now is not profitable for Green Lane, and so we're going to be restructuring that and exiting components of that business as well.
So that answers your first question in your second question on the percentage of sales.
I think your question was the percentage of sales.
The third party brands make up today that we're discontinuing.
And.
That.
Number of roughly is.
Between.
At 12% and $14 million annually on the consumer side. So.
Depending on how you look at the percentage, whether it's consumer or.
Across the whole business.
It's kind of the ballpark of the number and again our idea would be if we're giving up.
Call it $13 million in revenue that we would otherwise have achieved from these brands now we still have inventory that we're selling through so it's not going to be an immediate impact right.
How much of that can we replace with products of our own brands, which are going to be at double or triple the margin rate and so the idea is you give up $13 million of sales at a 20% gross margin, but you replace it with six $5 million of sales at <unk>.
40% gross margin Youre right back in the same place.
As we've stated our focus is no longer on top line growth. It is all about margin and it is all about profitability and so this strategic shift fits right into that strategy that we've outlined.
And then just the second question and kind of talk to us on that.
So just on the branded side, where are you seeing the strongest growth across your brands currently and then how you're still thinking about M&A on the branded side I mean, any consumer public statements you like to begin.
Not right now.
Or any settlements.
You'd like to add more brands, obviously, I mean is the opportunity that you just mentioned intended to loans youll take it away.
Any other segments that kind of jump.
<unk> you can add lots of LTE and you'd like to go a bit more deep.
Yes, so we are seeing good growth with our <unk> and ice brand.
We have a pretty robust pipeline for our group brand and we expect to see big growth out of that brand. This year, which is going to be more of a.
Our economy brand.
And we do have.
All of our brands, we do expect to grow this year.
Q1 has been a quarter, where we've been very busy.
Completing our integration and getting the new strategy launch. We also went through an ERP migration.
So some of this.
Affect.
Consumer brand sales in Q1, but the growth is baked into the rest of the year and we feel very confident about that especially moving into April which was $4 20, which is always a.
A very big month for the company so.
We think we've got most of the categories covered within the brand portfolio and we're going to be kind of expanding the.
The range of products within a couple of the brands like higher standards. For example is a very all encompassing high end smoke shop brand.
Whereas group is going to be more of an economy brand that can span.
Across a lot of those product sets as well so it gives us it gives us room to be able to launch products across a wide range of.
Category, so to speak and.
In terms of like what we're missing look we have ice as a premium silicone brand we have fives as.
Very high growth exciting paper brand.
We have da Vinci for Vaporizer, and again, we have the higher standards and groove that we mentioned with collaborations as Keith Haring Marley and all of that in between so we've got a lot covered in our portfolio today and if those to say where are the areas of opportunity.
As we look to expand.
Maybe not necessarily something we need to acquire right, maybe something that we could just launch within that portfolio.
And we're very focused on organic growth. This year, we've said that we're pausing.
Acquisitions, given given where the capital markets arent and just given the fact that.
This is going to be a year, where green lane.
Really execute internally right and we don't want to necessarily.
Complicate that by.
By bringing more assets into the fold when we kind of feel like we have enough already that we can build upon and we can expand.
That said.
There is an opportunity to joint venture or have somebody else support launching us into a new category that we that we feel is right.
We will consider things like that but we do intend to be much more focused this year on kind.
What's in front of us and just being able to execute on the plan get this business profitable.
Prepare for.
Very significant growth over the next five to 10 years.
It's hard to nest.
Necessarily think about the future when we're dealing with all the stuff we have to deal with it our company and across the industry, but the reality is we're still very early days and so we have to set ourselves up for success build this foundation and be prepared.
To be the ancillary cannabis leader for the next decade or two.
And that really starts this year with shoring up the foundation and executing on our on our get profitable strategy.
Very very helpful. Thank you Sir.
Thank you all I appreciate the question.
Your next question for today is coming from Scott Fortune. Please announce your affiliation then pose your question.
Good morning, Scott Fortune with Roth capital partners.
Real quick I wanted to touch base, a little bit on the E com side of things, whether it's consolidation or how you're looking at kind of the direct to consumer online footprint are there potential cost savings here, but just kind of.
That out a little more your online strategy as you look out going forward for Green Lane here.
Yes, so look I think what.
Important to us.
Focusing on the direct to consumer efforts, we kind of look at that a little bit different than the e-commerce .
Market place type efforts right with that we have with some of the websites and web properties we operate.
As we get more focused on our own brands, we want to be able to offer those brands directly to consumers through our website driving organic and paid.
Clicks to those domains and being able to transact getting these products on consumer marketplaces, like Amazon and Walmart and ebay.
So that's really going to be a bigger focus of ours. If you look at some of these marketplace sites.
We see obviously theres opportunity, we're generating revenue there today right.
But longer term.
A lot of that is going to be disrupted by bigger marketplaces, like Amazon and Walmart right when they start to adopt these products sets.
More widely and.
It's going to be opportunity for us in the near term, we want to capitalize on that but we want to put most of our efforts on where we see the <unk>.
Most viable strategy long term and building out a business right now that's going to ultimately directly compete with Amazon and our opinion is not probably the best use of our resources, we want to build out our business that's going to be complemented by Amazon wind candidates becomes federally legal so that's kind of the big <unk>.
Distinction that we want to highlight between.
Really what we would consider more direct to consumer using.
Using the Internet and using e-commerce versus more of an e-commerce type marketplace offering that we have in.
In our portfolio as well.
Again, I appreciate the color and just real quick.
No you are very involved on legalization Youre recently and kept the hill discussing legalization.
Any takeaway to what thing work behind the scenes potential.
Potentially.
Coming out in April or shifting to the C plus.
Plus type of opportunities from a legalization side and then any callouts on stage with senior business, they're continuing to thrive.
Drive growth here obviously.
As mentioned before we have consumer headwinds in such a challenging first half.
That you think are moving quicker from that same plant utilization.
Yes.
Appreciate it great question look I think to the.
First part in terms of the efforts in D C as.
As you pointed out Doug Fischer, our general counsel and myself that traveler Capitol Hill, we were 120 companies meeting with members on both sides.
House and Senate, both sides of the aisle and we had meaningful conversations I think tenure and sentiment has certainly changed I think people are aware of this they know that it needs to be addressed.
Question.
That comes up.
What we're all talking about as well in the industry is half right. How does it get done everybody is aware that it needs to get done I think there's a lot more support than there's ever been just a matter of how and I think what the industry believes and kind of based on the conversations we were having seems like a very viable path.
Would be an introduction.
Let's not forget the house's voting on the more active week, which is which is historic again in its own right, but everyone's waiting on schumer's Bill supposedly coming out in April and may be for 'twenty.
We agree might have the day off of 420, so we'll be able to watch closely.
And.
I think let's see the reaction right.
Let's see if they can make one big push.
But we all likely know the outcome right, they're not going to be able to get enough support to push something like that through and then at that point.
A question to ask themselves do they want to essentially hit a brick wall and stop or do they want to pivot and find a way to get something done via an alternative route like safe banking are safe plus as you mentioned and so we do think.
Rational heads will prevail right and I think given the facts and circumstances that they are likely to face after making the big push on on.
On the humor bill that they will circle back and come to terms around something that accomplishes some of what they want but has the bipartisan support and the path forward to get done and we know it's safe does.
Based on based on all the metrics in conversations out there. So we're optimistic I think a lot of folks in the industry are optimistic another dynamic we talked about was.
What's happening right now.
With Brittney griner locked up in Russia for cannabis oil.
President Biden is obviously going to have to do something about that.
The administration is going to need to make and ask that a foreign government released the prisoner.
That was put in for a non violent cannabis crime theyre going to have to make that ask while currently having 2700 non violent prisoners and our own federal prison system, that's going to be very difficult in my opinion, and I think that could drive biding to at least make a little bit of.
Yes.
His campaign pledge of decriminalizing, cannabis and Expunging records and releasing prisoners from federal system.
So those are the two dynamics that I have been paying most of the questions.
Close attention to and speaking.
With members about and again I think we've got this window here before the election.
Where something might give and if you had to ask me.
If I was thinking something would happen or not I'm, an optimist and I would say yes.
But I think it's hard to put anything realistically more than sort of a 50 50 coin flip at this point.
And then the second part of your question I forget because I rambled too long there Scott could you repeat it.
Callout on different states.
Thanks.
Yes, so look I think.
With our industrial goods business, we've traditionally.
Well since the last two years as you know been focused more on Msos and so our sales are tracking those markets that are doing well so markets in the northeast.
Sylvania, Massachusetts.
Florida, and the southeast, Illinois so.
So we're seeing our sales more tracking that we're seeing.
More turmoil in some of the legacy markets like California everyone's been looking at the pricing stuff there and for US. It's not that there is a business to be had its just that theres a lot of credit risk.
We're going to be outlined product to customers in those markets. Because you just don't know what's going to happen. So we're focused on.
The safer markets.
We know.
The operators they are very stable that they have strong balance sheets, and we're going to invest heavily in that it's a big investment and we want to make sure. There is a longer term ROI and so we're going to invest in the companies that we know we're going to be here, they're going to be the acquirers that are going to be consolidated in this space and our sales on the industrial side specifically are definitely.
Tracking along with the markets, where those operators are excelling on the consumer side.
We continue to see broad distribution I think.
We haven't noticed really impacts.
Specifically from like economic stuff within state I think all the data we're seeing.
Similar to kind of whats happened historically.
With the exception of kind of when we win some business in some of these new channels of trade rate I mentioned, the 711 exposure that <unk> now has and the southeast obviously, that's new and so youll see a little bit of an uptick there so no.
No meaningful conclusions from the consumer side and again on the industrial side sales are marrying more of the <unk> favorite markets.
You all know really well.
Your next question for today is coming from Glenn Mattson. Please announce your affiliation then pose your question.
Hi, yes, thanks for taking the call Glenn Mattson from Ladenburg Thalmann. So can you just help me bridge the gap on the cost reduction.
You talk about quarterly reduction from.
By about $10 million by Q3 of 2022, so 26.6 million down to $16 million at the high end.
And then so that's like $40 million on an annualized basis, and then you have $8 million.
In reduced workforce.
Workforce reduction cost savings and then.
Facility footprint reduction, which is mostly I think depreciation expense. That's not included in that number and then the rest is from I guess adjustments to go to market. So just seems like a big number.
Thats remaining so you could just bridge the gap on how.
How much work there has to be done to get to that level by Q3.
Hey, Glenn it's bill.
Yes that number the $10 million came off of a $26 million number for Q3, and obviously that number also had some one time items in it but the 14 to 16 per quarter is what we're feeling very strongly about we Ted said, we'd get $15 million to $20 million simply out of the merger synergies and we've already done that.
On our press release, we said we've claimed that we've already achieved that number eight plus $8 million of head count related to what we just announced.
It gets us gets us very close to the numbers that you just rolled off but what what guidance wise, we're telling you is $14 million to $16 million.
Adjusted SG&A, which is really everything, but depreciation and amortization.
Okay. So maybe just.
No.
And the progress to get there over the first half is it.
Just a general sense of like how much work still needs to be done just so we can build confidence in the ability to get there I think the more confidence in the number then.
Response, you're seeing.
In the market.
Yes, Glenn this is Nick so look I think.
We were very confident of our 15% to 20, we had updated the <unk>.
On the progress we've made through four months.
Reed.
<unk> a meaningful amount of those synergies right and then that wasn't included in the cost cutting that we announced on March 10, which included another $8 million a head count reduction so the head count reduction.
That we add up is already.
What we've said publicly over $16 million of annualized savings and that's something that.
Is obviously already recognize right and going to be.
Showing up in our P&L going forward and then some of the facility reductions and things like that we've already been able to.
<unk> facilities, and we're going to get them, where they are getting out of leases are getting sublease. So some of thats really tangible as well. So we feel very confident I don't think theres a lot of risk.
I've always been saying, Hey, we got to control what we can control.
And we know that we can control cost and so when we put out guidance for costs.
We heard of us hitting it is extremely hot if you put out guidance for sales growth a lot more variables there right. So costs, we can control, we're very confident and we do believe that.
To achieve the target range here in Q3, which was just three months away.
Yes, no thats very helpful. Last one quick for me just on the gross margin outlook.
When you weigh all of the variables like being able to pass through the freight surcharges and then the reduction in the <unk>.
Lower margin brands and things like that.
When you balance that against the challenges in the marketplace or.
That are out there can you just give us a sense of.
What kind of magnitude of improvement you think or what.
General thoughts on gross margin as you move throughout the year.
Yes look we're still we're still being I think pretty conservative on our gross margin projections, just given all the dynamics.
We've seen margins get weighed down with supply chain issues and tariffs and trade and we've got this nice plan to pass a lot of that through and a lot of thats going to lead to kind of incremental margin improvement.
The big margin improvement is going to come when we see that mix shift to our more of our consumer brands because they are just bringing in $45, 55% type gross margins.
So that's going to play out later in the year and hopefully if we get.
That part of our business to become larger as an overall part.
Could see the margins getting into the thirty's rate, but for this year.
Given all of those dynamics and not sure what we can expect from a supply chain side.
We're going to be focused more in the 24% to 5% range right and just nailing that.
And we think that aligns perfectly with.
Our cost cutting and what it's going to take to get this business profitable right. If you look at the sales we did last quarter.
$56 million, if we could just deliver.
On that 25%.
We're at the low end, we're hitting the low end of our SG&A range right, we're at $14 million and gross profit and for on the low end of our of our SG&A guidance we're breakeven.
Q4 sales so again building a plan that we believe we can execute on its conservative that can get us profitable without relying on significant topline growth. We love we want to grow topline don't get me wrong, but we don't want to bake on topline growth coming to save us and get us profitable we need to control.
What we can control and build a plan that we're extremely confident we can achieve and so again conservative gross margins in the 24%, 25% range Conservative revenue growth this year and we're going to be just fine.
Great. Thanks for the color guys.
Thank you. Thank you.
There are no further questions in queue I would now like to turn the floor back over to Nick for any closing comments.
Right on time here at just over an hour. So thank you all for tuning in.
Very pleased to report our first quarter as a combined company.
Between Cusco in Greenland, where the full.
Quarter was recognized between the two companies.
So we're really well down the path now of the new Green Lane. This year, we expect to be a phenomenal year for us despite.
Fighting against continued headwinds, which we expect in the industry, but we've gotten used to it that's the good news.
We have a very tangible plan as we've outlined here to accomplish our goals and.
And we think Theres a lot of upside if we could start to get some <unk> into the sector.
So we're feeling really good we.
We appreciate everybody's support and tuning in and hearing our story, we look forward to updating everybody throughout the course of the year, we want to be able to get some more exciting news out some of the big deals that we're working on et cetera, now that we've gotten through the bulk of the integration and we've outlaid the plan.
We intend to be able to articulate when throughout the year, we're excited to get back to winning I'm.
We're excited to get back to achieving our goals.
And we're excited for the industry to progress and hopefully some sort of legalization to come into play later this year.
Thank you hope everyone continues to stay safe and healthy and we look forward to updating you on our next call chairs.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.