Good afternoon, and welcome to today's conference call to discuss Greenlane Holdings Third Quarter 2022 Financial Results. A press release detailing the financial results for the quarter ended September 30, 2022 was distributed earlier this morning and is available on the Investor Relations section of the Greenlane website at investor.gnln.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.gnln.com. On the call today are Nick Kovacevich, Chief Executive Officer; Darsh Dahya, Chief Accounting Officer; and Craig Snyder, President. Before we begin, Greenlane 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, November 15, 2022. Factors that could cause Greenlane’s results to differ materially are set forth in today’s press release and in Greenlane’s Annual Report on Form 10-K for the year ended December 31, 2021 and quarterly report on Form 10-Q for the three months ended September 30, 2022, previously filed with the SEC. Any forward-looking statements made today on this call are based on assumptions as of today, and Greenlane assumes no obligation to update these statements as a result of new information or future events. During today’s call, Greenlane management may discuss non-GAAP financial measures, included adjusted gross margin, adjusted SG&A and adjusted EBITDA. Greenlane has included a reconciliation of these non-GAAP measures in today’s press release, which is available in the Investor Relations section of the company’s website at investor.gnln.com. I would now like to turn the call over to Mr. Nick Kovacevich, Chief Executive Officer of Greenlane. Please go ahead, Nick.

Hello, everyone, and thank you for attending our third quarter 2022 earnings call. We continue to make great progress on our key initiatives, setting this up for success in 2023 and beyond. However, we believe many of the results from these efforts are lagging indicators and will not be fully represented in our financial results until several quarters down the road. Today, we will discuss the results of Q3, but more importantly, also discuss some of our recent accomplishments and how those initiatives will benefit Greenlane in the long run. Liquidity is obviously extremely important in today's macro environment and we continue to make strong progress on our liquidity initiatives. First, we are pleased to update everyone on our previously announced 2022 plan to raise $30 million of non-dilutive capital. To date, we have brought in over $27 million in accordance with our plan, which includes one disposing of non-core assets such as our interest in Vibes, LLC, excess financial, the sale of our European various assets, and the sale of our company headquarters building in Boca Raton, Florida. Two, monetizing previously written off E&O inventory, and three, securing a $15 million asset base loan. In addition to the progress on our 2022 plan to raise non-dilutive capital, we recently announced the closing of a public offering for gross proceeds of $7.5 million. Raising capital in this challenging environment is extremely difficult, and so we were encouraged to see strong participation from institutional investors in our recent offering. Lastly, as the company looks to exit our packaging business and further streamline our remaining industrial businesses, we believe we can free up meaningful working capital throughout Q4 and 2023 by significantly reducing the overall inventory required to run this business. We believe we can run a profitable, higher margin consumer business…

Thanks, Nick. As we discuss the details of Q3 2022, I want to echo the statements earlier with regards to the team's efforts to navigate through the challenges we faced in the third quarter of 2022. Despite the decline in revenues, the company managed its liquidity tightly and during the third quarter, ended with a cash balance including restricted cash of 10.2 million, a net increase from Q2 2022 of 1.1 million. This was primarily driven by the company's efforts and transitioning activities during the third quarter. Revenues decreased 12.6 million or 31% to 28.7 million during the third quarter 2022 compared with the prior year. Third party consumer brand sales decreased 14.3 million, and Greenlane brands decreased 3.6 million. This was offset partially by higher KushCo post-merger sales of 20.1 million. The reduction in third party sales was due in part to our strategy to focus on proprietary brands and transition away from lower margin third-party brands. Revenues were down $11.3 million sequentially from Q2 2022 to $28.7 million. Gross margin increased to 17% for the three months ended September 30, 2022 compared to 4% for the same period in 2021. Excluding write offs of damaged and obsolete inventory associated with post-merger and ongoing product rationalization efforts, gross margins decreased 1% to 21% versus 22% during the corresponding quarter in 2021. Sequentially, gross margin was 20% in the second quarter of 2022 or 24% excluding inventory write downs. Salaries, benefits and payroll taxes were $7 million during the third quarter, down 21% sequentially from $8.8 million in the second quarter of 2022. General and administrative expenses were $8.5 million during the quarter, including a $2.2 million net gain on assets sold during the quarter. Excluding this gain, G&A expenses were $10.8 million, a sequential 2% increase from the $10.6…

[Operator Instructions]. Looks like our first question is coming from Aaron Grey with Alliance Global Partners.

So my first question is with the call savings initiatives that you spoke about with the SG&A levels, the 1.8 from September and then a 500 K from the office, what SG&A levels do you expect to be at once all the savings are realized? And what sales mark do you believe you'll need to hit to reach profitability? And what GMs would you associate with that?

This is Nick speaking. Craig is on the line as well, and we have dash here as well. But look, I think cost reductions obviously key. We're working as hard as we can to reduce those costs. When we look out into 2023, that's when we really start to see some serious reductions. And that's going to be driven by the sale of the packaging business. Because packaging, even though it makes up 20% of our revenue, let's just say, approximately, we take about 55% of our storage space to store those bulky jars, right? So, upon exiting that business, we're going to be able to reduce significantly in terms of warehouse footprint. We're going to be able to consolidate down into one warehouse. We think we'll save another 5 million plus annually with those moves. So yeah, the -- provided almost 2 million in annual savings. Just getting out of Cyprus Office space was another 500 K. But there's much bigger savings coming with that final consolidation upon selling packaging and then moving into the consumer business. So, we haven't put a target out there in terms of what we expected to be when -- but we will see sort of the full results of that kicking in the back half of 2023. And I don't know if my colleagues have anything else to add on that question if Craig has anything. But hopefully, we can provide more color specifically. As of now, we're unable to do that. Just adding to those reductions that we put out and sort of back half of the year for them to be fully recognized.

This is Craig. I think that the way we tried to align it is one work through our gross margin net of any -- which Nick just talked through. The packaging business will certainly help that be more precise and then build SG&A and cost of labor to make sure that we're reaching profitability. And our goal is to try to do that by the midpoint of next year. So, we've tried to work through where we think we're going to be revenue wise, gross margin wise, net of any E&O, and then also work with the SG&A and the labor with the divestiture as well to try to do that. The other things that are in there that are unique is the business itself went through a number of things. It went through two acquisitions with ICE and -- in a contemporary way before the merger. And it also acquired a European entity. Many of those entities required integration. And as you probably know, integration is a pretty expensive proposition to take place, especially if you're a public company. So we've worked through what I'll call the largest part of that integration the move to D-365, the move to one system whether it be accounting or inventory management. So I'd say we're 80% of the way through those systems, and that's where a lot of the expenses related to some of the consulting fees and the services we needed from a technical perspective. Because the traditional businesses didn't have IT chops to make sure that those alignments and transitions went quickly. So the good news there too is there's some hidden things like that on the integration side that are largely completed and we feel are going to accelerate our case of profitability through the second half of next year.

And then my second question regarding the consumer brands business, can you speak to the margin outlook there and maybe break that out between your own brand and the third-party brands? Are there any supply chain issues that are making it difficult to keep the business attractive on the margin side with the third-party brands? Or is that more due to the use of sub-distributors and giving up some margin there?

I'll take the first part. It’s Nick. So, you hit on a good point. And when you're looking at margin sometimes it's not only the margin, but you have to talk about the channel in which you're selling the product. And it's the margins can be very different whether you sell it in sub distribution or sell it in the retail segment. In some cases, the gross margin can be 5x to 7x difference depending on how you sell it. I would say in our house products, any product that we try to develop, we expect to have close to, or an excess on an aggregate basis of a 40% margin. That's been our goal. And so far haven't seen anything being sourced or manufactured that's going to prevent us from hitting that goal. Off-course there's a little bit of tailwind in the logistics side as well where some of the pressure from previous logistic costs have dropped. So that's our goal there. On the other side, I think, you're seeing this move through a more, what I'll call normalized consumer goods market, where companies will be incentivized for their sales in the third-party space. So you'll see things like rebates, returns and MDF funds continue to flow into the market. We're seeing that now and we think that's a net benefit. And our goal next year is to get margins on an aggregate basis upwards of 25% to 30%. That's our goal in this marketplace, and we think we can, and we can do that combining both segments of that business, and also working on and making sure that the channels in which we're selling it at are performing well as well.

The next question is coming from Scott Fortune with ROTH Capital Partners.

Real quick, where are you at with the product rationalization? You've been working on that for a little while here, and with that in mind kind of talking about inventory, you mentioned getting inventory down, and working at how much more do you have to work through kind of old inventory to get that down to a level that you are off about 19 million, but get that down to a level that you like going forward here into 2023?

Yes. I can start with that. This is Nick. Hey, Scott, thanks for the question. I'd like Craig giving his commentary after mine, but I think look, this is going to be part of our liquidity plan. We talked about the prepared remarks. Being able to raise the capital that we did in a very difficult climate, speaks a lot of volumes for what we were able to do as a team, and attract institutional capital. But that's obviously not the preferred way to fund the company going forward, because of the dilution. So what we really would like to do, and we're going to do is we're going to have several initiatives that help us really consolidate our inventory down to that core consumer base. That's going to be somewhere around literally half of what we have the day. I mean, I think, we can run our consumer business with maybe 20 million in total inventory, right? We're at -- we're significantly higher than that today. Now we have packaging inventory that's going to obviously go with the sale of the packaging business, right? So that's a big reduction there. And we're looking at smarter ways to run our lower margin industrial business which would be the CECL business and the energy business, right? So really if we get down to the consumer business, because the margins are much higher, obviously, we'd like to grow that business, and if you grow the business, you're going to need more inventory. But at our current levels, we can run this business with far less inventory and produce the same, if not even more sales than we're producing today with that higher margin. So that's really where we're going to get our working capital. And that's why we're pretty confident to say…

So you asked about the brand rationalization. The business had about 173 brands that was working with at the beginning of the year, that number is down to about 25. And even with that rationalization, we retained 95% of the revenue that we had previously. So it's been a matter of focus. You should assume that the SKUs probably decreased by about 60% to 70% during that process. And I think we will even go through another SKU rationalization based on colors and variations of that sort. So the set list if you will or our catalog if you will has gotten much, much tighter and much more focused. In terms of new products, we have got roughly almost three dozen new products set to come out between Q4 and the end of next year. The vast majority, those are proprietary products probably mid-twenties that we will launch. And part of the goal there too is a kind of dual fault. We have always been a very good leader in the high end of the marketplace where we reach the -- there are very high-end products and they are priced accordingly. I think you will see us move into the mid segment and even the approachable segment at a beginner part of the market place, but not sacrifice that for what I'll call the high utility of the products. And the reason for that is, many of the people that were the founders at EYCE and DaVinci that developed these very high-end products that meet the -- market we are just taking a lot of the technology and the learnings down to each segment. So we can bring products into each segment and the markets that are very approachable, very affordable, and therefore we will have products that are in the beginner segment in the mid-tier segment, in the advance segment as well. So twofold fold, really making the brand rationalization come down so we have much better focus internally. And then for the new products making sure, they are focused on higher margins one, but not only that too that they are hitting in the right segments as well. So we are not concentrated in one segment or the other.

And then real quick one, weather more for me. Can you provide kind update on the e-commerce discussions you are having or kind of that seems legislation movement could be opening up here. What we are seeing a lot more strategic partners come on board in the cannabis space. But just kind of your discussions here moving down the e-commerce side of things, that would be helpful.

Sure. I think what you see here is, one that the Europeans are probably a little bit ahead of us in their acceptance of the product set. So we've been able to advance there. And looking at the partners there, Amazon continues to be kind of lead driver. But there are also other players around the world like Flipkart and MercadoLibre that play a significant role. Then we have eBay and Walmart is course. I think as Paris Priest says we pray in our time and God answers it is. I think it's the same way with government regulatory legislation. We are prepared and we are putting all the pieces in place, so that we are ready to go with all our products. And to give you an example of that, one of the things we have done with Amazon is applied for our transparency program, which really allows for brand protection around our products. That requires score a labeling or snickering of the product in which case we own the buy box in which case we'd be able to own all the advertising that goes in there, and it helps the drive the DSR score down, which is a good thing, because we own that particular segment. So we put a tremendous amount of energy into our e-commerce assets, not only the e-commerce platforms, but we also vapor.com pop it up and Vapo Shop are going through and have gone through revamps, both from an SEO perspective and are going through a targeting perspective now from an -- perspective. So you start to see that hit in the fourth quarter, where we're hoping to drive a nice or revenue on ads spend. So that will start to kick in probably the end of Q4. And then each of the brand sitesum, whether it's Da Vinci or ICE or others, has gone through their site improvements and metrics. So there's been a lot of kind of foundational groundwork done, so that we can do some of the acceleration here in the early part of next year. And that is one of the things related to Aaron's question earlier, that's really important because it, if the product is sold on one of our websites, whether it be a brand site, whether it be one of our aggregator sites or whether it be on one of the third party aggregators, the margins there are in much better stead than doing kind of distribution or sub distribution. So that's why also we want to have nice balance across kind of those segments of the marketplace and they're very important to us.

[Operator Instructions] The next question is coming from Andrew Bond with Jefferies.

Andrew Bond on the line for Owen Bennett, thanks for taking our question. Could you, just going back to working with some of the MSOs, can you give a little more detail on that initiative for the consumer segment? Have you seen the number of MSO customers or number of MSO doors increase, maybe just in terms of your own brands in the last quarter or two? Not sure if you can give any exact metrics on that, just how that's initiatives tracking or just general thoughts, especially now given cannabis retailers might be looking for more ways to capture additional sales or margin amid industry pressures.

So I'll start with that one. So, look, as you know, the MSOs have been very busy. Everybody's triaging trying to absorb the shocks we've been feeling in the market, right? And the MSOs are no different. They're pretty busy doing M&A and integrations and things like that, but they all recognize simultaneously that the consumer products is a bit of a problem for them and also a huge opportunity as you pointed out. What's happening today, generally across the board with the MSOs is sort of a board of different purchasing routes, right? So you'll have in some instances, right, where store managers are procuring online through leaf trade or through wholesale.greenlane.com or through other sites that are out there. You'll have store managers that are pulling petty cash out to the register and telling the budtender to go down to the local cash and carry glass district and by some of these accessories. Or you'll have folks that do have some enterprise type of relationships, but it's really kind of spread out. It's scattered. So these MSOs are not benefiting from their scale, right? To get the price breaks that they deserve at the larger scale. They're also not creating a uniform consistent customer experience across their ever-growing retail footprints. So they recognize that and they don't have the visibility, right? That's the other thing where if you have a bunch of different people purchasing, you just don't have visibility into what their spend is. That's the problem that we come in and we're having conversations, we're here live in Las Vegas, having those conversations with MSOs about solving that problem for them, it's very well received. Is it the highest thing on their list? No, but they recognize that it is a problem and, and they recognize…

Yes. I think it's an opportunity that contemporarily has come up quite a bit. The MSOs is you're well aware of and engaged in a lot of M&A and rolling up a number of brands. And now they're really a working hard to decide how they're going to run the retail stores. And even though the end commodity is cannabis I think, they realize that the goal of each of the stores is driving revenue per square foot, driving average order value, driving attachment rates, all what I'll consider fundamental or old school type fundamental store metrics. So some of the things that we've worked with them on are things like merchandising and placements very closely. And if you we're at the show this week, you'll see a lot of work that we've done in the last six months in preparation, specifically on merchandising. But I think that's what you see them all moving towards a model where they have a more consistent look and feel whether it's one brand or multiple brands, and that driving revenue for square foot is an important part of that metric. And we play a role there because we're one of the few that can have this scale and scope of products, along with the merchandising to help them out.

[Operator Instructions] We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Thank you. And thank you all for dialing in. I know we are here live in Las Vegas, as I mentioned at MJBizCon. I know a lot of analysts are here traveling and appreciate you guys making the time. Obviously 2022, it's been a rough year for the cannabis industry. Greenlane’s been making our adjustments, setting us up for success in 2023. So we appreciate everybody bearing with us as we are doing that. Again, as I mentioned, I think our platform is still unrivaled, right? Nobody is really out there doing what we are doing and offering it at scale like we are. So is this industry going away? Absolutely not. More people are consuming cannabis every year than the year prior. So the future is bright in that respect. And we are positioning the business to get through these tough times. And then to be able to capitalize on those future opportunities, and we feel very good about that. So again, appreciate everybody hanging with us through that. This is actually bitter suite for me, because it's going to be my last earnings call as CEO. When I step down at the end of the year and transition to Craig, it'll will be exactly 7 years running a publicly-traded company in the cannabis industry and that involves us being really back at Kush Bottles, the first company ever have research coverage from analysts. And I think it was Aaron Grey was around at that time and Vivian. And so thinking back 2016, what are ride it's been. But I'm not done. Right, I'm staying on here Greenlane. I believe in Craig, his leadership and his vision for the company and where the company is going really aligns well with his skill set. So I'm going to stay in a corporate development role, and I'll still be involved in these calls. But just as my last call here as CEO, I want to just issue a very warm thank you to the analysts and investor community, that supported me, supported Kush Bottles and supported Greenlane, really appreciate, it means the world for me and I look forward to seeing some of you guys here in Las Vegas. And I do appreciate you guys continuing to support the company as we transition to our new model, as we transition to new leadership. The future is very bright. We're excited. And again, we are happy to be here telling the story and hope to see some of you guys around. Hope everyone has a great rest of your week. Stay safe, good holiday season and we will talk to everybody soon. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.