Good day, ladies and gentlemen, and thank you for standing by. Welcome to today's conference call to discuss Greenlane Holdings' Third Quarter Fiscal 2019 Financial Results. [Operator Instructions] Hosting today's conference will be Liz Zale, Sard Verbinnen. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ms. Zale. Please go ahead, sir.

Thank you, Sherry. Good afternoon and welcome to Greenlane third quarter 2019 call. As a reminder a press release detailing the financial result for the quarter is available on the investor relations section of the Greenlane website. This call is being webcast and a replay will be available on the company's website for approximately 30 days. On the call today are Aaron LoCascio, Chief Executive Officer; and Ethan Rudin, Chief Financial Officer. Before we begin, I'd like to remind everyone that Greenlane's prepared remarks may contain forward-looking statements and management may make additional forward-looking statements in response to your questions. 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, including those identified in the Risk Factors included in Greenlane's IPO prospectus dated April 17, 2019 and in today's press release. This call also contains time sensitive information that is accurate only as of the date of this live broadcast, November 08, 2019. Greenlane assumes no obligation to update any forward-looking statements that may be made in today's release or call. During today's call management will discuss non-GAAP financial measures including adjusted net income and adjusted EBITDA. Management believes these financial measures can facilitate a more complete analysis and greater transparency in the Greenlane's ongoing results of operations, particularly when comparing underlying operating results from period to period. Greenlane has included a reconciliation of these non-GAAP financial measures in today's press release. Now I will turn the call over to, Aaron LoCascio.

Thanks, Liz, and good afternoon, everyone. I will start with a briefly review our third quarter sales highlights, operating environment and business development activities, and then turn the call over to Ethan to discuss our financial results in more detail. After Ethan's comments we will open up the call for your questions. Let me start by noting that our core business remains strong and we continue to make progress on the three pillars of our strategy. One, building our house brands. Two, growing our supply and packaging business. And three, strengthening our direct to consumer operations. We are confident that these will be key drivers of our growth as we think about 2020 and beyond. Before I talk more about these growth drivers and a progress there, I want to directly address certain industry headwinds that impacted our sales this quarter. Overall, revenues were up 3% year-over-year to 44.9 million, but decreased from the second quarter. The unforeseen crisis of acute liquidating related health conditions, coupled with the lack of clarity around regulatory actions negatively affect our sales of JUUL and other vaporization related product and cause some B2B customers to reduce their orders. As a result of these and other factors which Ethan will provide more context on shortly JUUL sales decreased sequentially from Q2. As a leading distributor of vaporization hardware any e-cigarettes we are of course very concerned about recent reports of acute health issues related to vaping. Studies and investigations into vaping related illness are ongoing and no clear conclusions have been reached to date. We're closely monitoring the situation for additional developments. I believe it is important to reiterate that Greenlane is dedicated to consumer safety and we have taken numerous steps to protect the health and safety of end users to ensure the quality…

Thanks, Aaron and hello, everyone. Our Q3 2019 revenues increased year-over-year at 3% to $44.9 million. If we include the revenue of conscious wholesale on a pro forma basis, net sales would have been $47.3 million for the third quarter of 2019. Positive drivers of revenue growth for the quarter, with a continued growth in popularity and availability of our top six products from our top product lines, as well as continued innovation from these brands, which collectively resulted in a 6.3% increase in net sales year-over-year. We also had strong performance in Canada, where the expansion of the Canadian cannabis market drove a 100% year-over-year increase in sales for the quarter to $6.4 million. Our total sales growth was impacted by a $2 million increase -- decrease, excuse me, in sales related to the vaporizers and vaporizer accessory products within the top six at brands. briefly As Aaron briefly touched on, in the third quarter, we were impacted by the industry headwinds related to consumer concerns around vaping-related illnesses. As we look ahead to Q4, we anticipate a meaningfully negative impact on revenue due to the vaping regulatory environment or deliberate decision to proactively move away from low margin deals and limit discounts on JUUL and other products moving forward, and the discontinuation of sales of mint in the U. S. announced by JUUL yesterday. In light of these impacts, we anticipate up to a 50% decline in our JUUL sales from Q3 2019. We expect these dynamics and deliberate business decisions to contribute to margin expansion going forward. Gross profit for the third quarter of 2019 with $6.4 million resulting in a gross margin of 14.3%, including the contribution from conscious wholesale on a pro forma basis, gross profit would have been $7.6 million or 16.1% of revenue…

Thank you. [Operator Instructions] Our first question is from Vivien Azer with Cowen and Company, please proceed.

Hi, good morning. So even I understand your commentary around gross margin volatility, but if I reflect back on some of our understanding of your gross margin profile last quarter, the way we were thinking about it was, you know, JUUL's like a 10% margin, the rest of the business is a 24%, and then we can, you know, use your revenue mix and get to the 17.3% that you reported last quarter. That map doesn't seem to hold this quarter. Is there any incremental detail you can offer to help us think about modeling gross margin based on the evolution of your revenue mix, in particular, given your commentary around de-prioritizing JUUL a little bit? Thank you.

Yes. Thanks for the question, Vivien. I would say that obviously the quarter would intimate that there's been some margin degradation in the JUUL business, and I would say that over the quarter, the margin profile has been in the mid to high single digits.

Additionally, I'll also add to that, this is Aaron, that the nature and timing of the JUUL remix contributed in excess of 200 basis points to the margin decline.

Okay, that's great. Thank you for that. So it's encouraging that you guys, you know, are going to focus on higher margin opportunities, in reiterating your target for a 20% plus gross margin. How should we think about the timing of attaining that kind of targeted margin? Thank you.

Well, you know, I would say that in the last quarter, we had reiterated that when you remove JUUL from the margin profile blended of our entire gross margin, you know, you actually usurped those long term targets. I would say that our continued focus, you know, on reducing that JUUL concentration and particularly self-selecting not to do the low margin part of the business should have us back there, hopefully in the coming quarters.

We've got our own estimate of what we think JUUL did in the quarter, but can you disclose what was JUUL versus non-JUUL revenue? Thanks.

So JUUL revenue for the quarter in total was $20.4 million.

Perfect. Thanks very much.

Our next question is from Glenn Mattson with Ladenburg Thalmann. Please proceed.

Hi, thanks for taking the call. Curious a little bit on the conscious wholesale acquisition, you know, obviously you're expanding into Europe, you've talked about those plans in the past, but, is part of that -- is part of the idea there to distribute JUUL products and is there a large percentage of their business is of vaping and just give us kind of maybe some sense the background as to whether or not this news has traveled across the pond, you know, in this kind of negative vaping backdrop? Thanks.

So, a couple of things. Thanks for the question. Appreciate it. So we -- we have seen some of the concerns around vaping cross borders, in particular, in Canada, where we have a long term business. In Europe, where we're relatively new, we recently made this acquisition. The conscious wholesale acquisition does not currently have any nicotine products within its portfolio. It's something that we will continue to evaluate as we go forward. Otherwise, their business is relatively analogous to our business, in terms of the products they sell. They do sell a lot of open system vaporizers, which I will also comment that in light of or despite the fact of around the vaping concerns in the industry, the effect to the open system vaporization products has been limited, and we anticipate that trend to continue. But really, this acquisition is a launching pad for us to expand our portfolio, namely of our high market house brands into more than 20 new markets in Europe.

Okay, great. I'll squeeze one more in on the retail store roll out. Can you give us outlook for what you're thinking about for next year and just the thought process as to how quickly you -- you think you'll be moving as far as opening new stores and how hard it is to find locations and just a background around that.

Sure, so New York and, you know, we have our New York location in Chelsea Market, which continues to perform very well. Ponce City, it's early days, we're excited for the holiday season, just opened up or about to open up, rather, I should say. The Malibu location, we're nearing a fourth location that we're not quite ready to disclose. As we look towards next year, we aren't specifying the exact number of locations we're targeting. However, we have previously cited that, on average, typically around three stores per year. But we want to be very thoughtful around each individual location. We want to study and learn from each individual location, the differences between how Chelsea market performs against Ponce City against Malibu and the various demographics. But we have a great partner on the real estate front, Jamestown, which has a large number of real estate assets across the country, and we're evaluating a number of other potential locations for next year launches.

Great. Thanks Aaron, and that's it from me

Our next question is from Scott Fortune with ROTH Capital Partners, please proceed.

Good morning. Thanks, guys. Could you provide a little more color on Canada and kind of JUUL sales that's going on up there, and then the rollout kind from a timing standpoint, and what are you seeing the rollout in Canada looks like from a timing standpoint, here?

Yes, thanks for the question. So, in terms of JUUL concentration in Canada, the split is about 80-20, 20% Canada, 80% US. Canada is still very early days, and as we mentioned in our prepared comments that, you know, we've doubled the business there. It's gone over $6 million from $3 million. And what I would say is that we're very, very encouraged at the introduction of our house brands up there. Obviously, we're looking to increase our margin profile, and fortunately, the margin profile of JUUL sales in Canada is better than what we're doing in the US as it isn't this pervasive yet.

Okay, great. And are you seeing any, kind of, delays or push back for the Cannabis 2.0 rollout or alternate timing expected probably, first quarter next year to release that, and receive some meaningful revenues from that side of things?

Yes, as I said, you know that it's still such early days, and we have plenty of wood to chop that we don't see it slowing us down, although we do see delays in the broader market.

Okay. And then real quick on the operation side, kind of, you know, with JUUL obviously not evolved truly there, but can you speak to me on the right sizing of kind of SG&A going forward and potential timing of getting adjusted to the EBITDA are positive from that standpoint?

We're always in a state of reassessing our talent, thinking through, are we set up for growth for the future, and so, you know, all salaries have increased, a lot of it is figuring out, you know where to strategically place sales. Thinking about how to do more specified sales targeting, so you know, at the end of the day, we will be rationalizing a bit of the workforce, but it's not at this stage anything that we're prepared to talk about in any sort of detail.

Okay, thanks for the color. I'll jump in the queue.

[Operator Instructions] Our next question is from Mike Grondahl with Northland Capital Markets. Please proceed.

Yes, guys, What one or two product categories are you kind of most confident that can kind of drive revenues incrementally in margin? How should we think about that going forward?

Rather than -- rather than a product category, more, broadly speaking, we are and remain focused on our House brands. We've launched a number of various House brands. They typically have a much higher margin profile associated with them, much higher than our general long term margin target. So as that business continues to grow, we expect that to have a disproportionately meaningful effect on our margin profile. In this quarter, we grew up to 7.7% of our total revenue and we expect to see double digits in the very near term.

Okay, is there a second area we should think about or watch or is that the main one?

Well, there's really three areas of the business, doesn't relate to products, it's the House brands predominantly. Then we have our -- our business-to-consumer operations, which includes both our e-commerce properties, as well as our brick and mortar stores, Higher Standards. And then the third pillar that we focus on that has a higher margin profile associated with it is our supply and packaging business, which is predominantly made up of our patented child resistant packaging, Pollen Gear, by virtue of our acquisition earlier -- earlier this year and some of our closed cartridge vapor systems. Those three areas of our business all have much higher margin profiles associated with them, and frankly, even our B2B CPG category, which is selling the consumer packaged goods to our independent smoke shops and vape shops across the country, absent JUUL have a margin profile that's much more substantial than otherwise blended with JUUL.

How were e-commerce sales in the quarter?

There was no material change to our performance on e-commerce sequentially, so there's nothing specific to report there, but it is a key focus area for us going forward that we will continue to make investment, essentially, it's a work in progress as we continue to invest in that segment of our business.

Okay, great. Thank you.

We have reached the end of the question-and-answer session. I would like to turn the conference back over to Aaron for closing remarks.

Thank you very much. I just wanted to say thank you for everyone's time today, and I look forward to seeing many of you in Boston in the coming days.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.