Greenlane Holdings, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-38875

(Commission file number)

Greenlane Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware						83-0806637
State or other jurisdiction of incorporation or organization						(I.R.S. Employer Identification No.)


1095 Broken Sound Parkway,	Suite 300
Boca Raton,	FL	33487
(Address of principal executive offices)		(Zip Code)

(877) 292-7660

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

GNLN

Nasdaq Global Market

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, 2022, Greenlane Holdings, Inc. had 15,803,512 shares of Class A common stock outstanding and 147,989 shares of Class B common stock outstanding.

Greenlane Holdings, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2022

TABLE OF CONTENTS


		Page
PART I	Financial Information
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II	Other Information
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 5.	Other Information	36
Item 6.	Exhibits	45
Signatures		46

PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value per share amounts)


	September 30, 2022		December 31, 2021
ASSETS	(Unaudited)
Current assets
Cash	$	8,039	$	12,857
Restricted cash	2,155		—
Accounts receivable, net of allowance of $4,275 and $1,285 at September 30, 2022 and December 31, 2021, respectively	11,805		14,690
Inventories, net	47,945		66,982
Vendor deposits	9,167		18,475

Other current assets (Note 8)	7,360		11,733
Total current assets	86,471		124,737

Property and equipment, net	11,838		20,851
Intangible assets, net	55,294		84,710
Goodwill	—		41,860
Operating lease right-of-use assets	5,498		9,128
Other assets	6,227		4,541
Total assets	$	165,328	$	285,827

LIABILITIES
Current liabilities
Accounts payable	$	16,295	$	23,041
Accrued expenses and other current liabilities (Note 8)	20,679		25,297
Customer deposits	4,523		7,924
Current portion of notes payable, including $0 and $8,000 owed to related party as of September 30, 2022 and December 31, 2021, respectively (Note 6)	3,156		11,615

Current portion of operating leases	2,462		3,091

Total current liabilities	47,115		70,968

Notes payable, less current portion and debt issuance costs, net (Note 6)	13,488		10,607

Operating leases, less current portion	3,027		6,142

Other liabilities	154		1,746
Total long-term liabilities	16,669		18,495
Total liabilities	63,784		89,463

Commitments and contingencies (Note 7)

STOCKHOLDERS’ EQUITY*
Preferred stock, $0.0001 par value, 10,000 shares authorized, none issued and outstanding	—		—
Class A common stock, $0.01 par value per share, 600,000 shares authorized; 7,470 shares issued and outstanding as of September 30, 2022; 4,260 shares issued and outstanding as of December 31, 2021*	68		43
Class B common stock, $0.0001 par value per share, 30,000 shares authorized; 148 shares issued and outstanding as of September 30, 2022; 1,087 shares issued and outstanding as of December 31, 2021*	—		—
Class C Common stock, $0.0001 par value per share, no shares authorized, issued and outstanding as of September 30, 2022 and December 31, 2021	—		—
Additional paid-in capital*	259,314		229,705
Accumulated deficit	(158,109)		(55,544)
Accumulated other comprehensive income	53		324
Total stockholders’ equity attributable to Greenlane Holdings, Inc.	101,326		174,528
Non-controlling interest	218		21,836
Total stockholders’ equity	101,544		196,364
Total liabilities and stockholders’ equity	$	165,328	$	285,827

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Net sales	$	28,680	$	41,314	$	115,130	$	110,038
Cost of sales	23,711		39,827		96,094		90,943
Gross profit	4,969		1,487		19,036		19,095

Operating expenses:
Salaries, benefits and payroll taxes	7,000		11,192		25,897		23,158
General and administrative	8,547		16,795		30,850		34,774
Goodwill and indefinite-lived intangibles impairment	66,760		—		66,760		—
Depreciation and amortization	2,124		1,199		6,876		2,385
Total operating expenses	84,431		29,186		130,383		60,317
Loss from operations	(79,462)		(27,699)		(111,347)		(41,222)

Other income (expense), net:
Interest expense	(926)		(119)		(1,598)		(368)
Other income (expense), net	1,173		(894)		562		(690)
Total other income (expense), net	247		(1,013)		(1,036)		(1,058)
Loss before income taxes	(79,215)		(28,712)		(112,383)		(42,280)
Provision for (benefit from) income taxes	—		3		62		(11)
Net loss	(79,215)		(28,715)		(112,445)		(42,269)
Less: Net loss attributable to non-controlling interest	(4,106)		(12,434)		(9,880)		(18,689)
Net loss attributable to Greenlane Holdings, Inc.	$	(75,109)	$	(16,281)	$	(102,565)	$	(23,580)

Net loss attributable to Class A common stock per share - basic and diluted (Note 9)*	$	(11.43)	$	(8.19)	$	(18.01)	$	(19.60)
Weighted-average shares of Class A common stock outstanding - basic and diluted (Note 9)*	6,574		1,987		5,694		1,203

Other comprehensive income (loss):
Foreign currency translation adjustments	(238)		(147)		(212)		(59)
Unrealized gain (loss) on derivative instrument	—		52		358		256
Comprehensive loss	(79,453)		(28,810)		(112,299)		(42,072)
Less: Comprehensive loss attributable to non-controlling interest	(4,106)		(12,479)		(9,794)		(18,556)
Comprehensive loss attributable to Greenlane Holdings, Inc.	$	(75,347)	$	(16,331)	$	(102,505)	$	(23,516)

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)


	Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional Paid-In Capital*		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest		Total Stockholders’ Equity
	Shares*	Amount*		Shares*	Amount*		Shares	Amount
Balance December 31, 2021	4,260	$	43	1,087	$	—	—	$	—	$	229,705	$	(55,544)	$	324	$	21,836	$	196,364
Net loss	—	—		—	—		—	—		—		(15,332)		—		(3,417)		(18,749)
Equity-based compensation	94	1		—	—		—	—		729		—		—		172		902
Issuance of Class A shares, net of costs - ATM Program	557	6		—	—		—	—		6,795		—		—		—		6,801
Issuance of Class A shares - contingent consideration	191	2		—	—		—	—		3,484		—		—		—		3,486
Exchanges of noncontrolling interest for Class A common stock	28	—		(28)	—		—	—		543		—		—		(543)		—
Other comprehensive income	—	—		—	—		—	—		—		—		361		85		446
Balance March 31, 2022	5,130	52		1,059	—		—	—		241,256		(70,876)		685		18,133		189,250
Net loss	—	—		—	—		—	—		—		(12,124)		—		(2,357)		(14,481)
Equity-based compensation	(4)	—		—	—		—	—		371		—		—		75		446
Issuance of Class A shares, net of costs - ATM Program	296	3		—	—		—	—		2,221		—		—		—		2,224
Issuance of Class A shares, net of costs - June 2022 Offering	585	6		—	—		—	—		5,034		—		—		—		5,040
Issuance of Class A shares - Amended Eyce APA (Note 3)	72	1		—	—		—	—		309		—		—		—		310
Reclassification adjustment for gain included in net loss (Note 4)	—	—		—	—		—	—		—		—		(332)		—		(332)
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(62)		—		(62)
Balance June 30, 2022	6,079	62		1,059	—		—	—		249,191		(83,000)		291		15,851		182,395
Net loss	—	—		—	—		—	—		—		(75,109)		—		(4,106)		(79,215)
Equity-based compensation	(15)	(3)		—	—		—	—		178		—		—		10		185
Issuance of Class A shares - Amended Eyce APA (Note 3)	—	—		—	—		—	—		206		—		—		—		206
Issuance of Class A shares - Prefunded warrants exercise (Note 9)	495	—		—	—		—	—		—		—		—		—		—
Exchanges of noncontrolling interest for Class A common stock	911	9		(911)	—		—	—		9,739		—		—		(9,748)		—
VIBES disposition / deconsolidation (Note 3)	—	—		—	—		—	—		—		—		—		(1,789)		(1,789)
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(238)		—		(238)
Balance September 30, 2022	7,470	$	68	148	$	—	—	$	—	$	259,314	$	(158,109)	$	53	$	218	$	101,544

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

The accompanying notes are an integral part of these consolidated financial statements.


	Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional Paid-In Capital*		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest		Total Stockholders’ Equity
	Shares*	Amount*		Shares*	Amount*		Shares	Amount
Balance December 31, 2020	666	$	7	175	$	—	76,039	$	8	$	39,869	$	(24,848)	$	29	$	54,192	$	69,257
Net loss	—	—		—	—		—	—		—		(4,256)		—		(3,458)		(7,714)
Equity-based compensation	11	—		—	—		—	—		182		—		—		324		506
Other comprehensive income	—	—		—	—		—	—		—		—		18		31		49
Issuance of Class A common stock	21	—		—	—		—	—		2,005		—		—		—		2,005
Exchanges of noncontrolling interest for Class A common stock	118	1		(52)	—		(3,975)	(1)		5,797		—		—		(5,797)		—
Cancellation of Class B common stock due to forfeitures	—	—		—	—		—	—		8		—		—		(8)		—
Balance March 31, 2021	816	8		123	—		72,064	7		47,861		(29,104)		47		45,284		64,103
Net loss	—	—		—	—		—	—		—		(3,043)		—		(2,797)		(5,840)
Equity-based compensation	(1)	—		—	—		—	—		161		—		—		246		407
Exchanges of noncontrolling interest for Class A common stock	30	—		—	—		(1,763)	—		983		—		—		(983)		—
Exercise of Class A common stock options	2	—								112		—		—		—		112
Member distributions	—	—		—	—		—	—		—		(200)		—		—		(200)
Other comprehensive income	—	—		—	—		—	—		—		—		96		147		243
Balance June 30, 2021	847	$	8	123	$	—	70,301	$	7	$	49,117	$	(32,347)	$	143	$	41,897	$	58,825
Net loss	—	—		—	—		—	—		—		(16,281)		—		(12,434)		(28,715)
Equity-based compensation	—	—		—	—		—	—		2,036		—		—		1,772		3,808
Exchanges of noncontrolling interest for Class A common stock	201	2		(201)	—		—	—		5,368		—		—		(5,370)		—
Exercise of Class A common stock options and warrants	299	3		—	—		—	—		153		—		—		—		156
Conversion of Class C common stock	—	—		1,172	—		(70,301)	(7)		7		—		—		—		—
Issuance of Class A common stock, net of costs	2,644	26		—	—		—	—		166,187		—		—		—		166,213
Other comprehensive loss	—	—		—	—		—	—		—		—		(51)		(44)		(95)
Balance September 30, 2021	3,991	$	39	1,094	$	—	—	$	—	$	222,868	$	(48,628)	$	92	$	25,821	$	200,192

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine months ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss (including amounts attributable to non-controlling interest)	$	(112,445)	$	(42,269)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,876		2,385
Equity-based compensation expense	2,020		4,762
Goodwill and indefinite-lived intangibles impairment charge	66,760		—
Change in fair value of contingent consideration	(1,197)		755
Change in provision for doubtful accounts	2,637		318
Gain related to indemnification asset	(2,018)		(1,692)
(Gain) loss on disposal of fixed assets	820		109
(Gain) loss on disposal of held-for-sale assets	(780)		97
Gain related to VIBES disposition / deconsolidation (Note 3)	(2,062)		—
Unrealized loss on equity investments	1,214		305
Realized (gain) loss on interest rate swap contract	(408)		—
Amortization of deferred financing costs and debt discount	446		15
Other	(17)		7
Changes in operating assets and liabilities, net of the effects of acquisitions:
Decrease (increase) in accounts receivable	247		(2,092)
Decrease (increase) in inventories	19,044		9,723
Decrease (increase) in vendor deposits	5,027		(661)
Decrease (increase) in other current assets	1,257		9,985
(Decrease) increase in accounts payable	(5,384)		(7,673)
(Decrease) Increase in accrued expenses and other liabilities	(1,124)		(5,957)
(Decrease) increase in customer deposits	(3,401)		(145)
Net cash used in operating activities	(22,488)		(32,028)
Cash flows from investing activities:
Purchase consideration paid for acquisitions, net of cash acquired	—		(12,284)
Proceeds from VIBES disposition (Note 3)	4,567		—
Purchases of property and equipment, net	(1,660)		(2,327)
Proceeds from sale of assets held for sale	9,593		675
Purchase of intangible assets, net	—		(320)
Net cash provided by (used in) investing activities	12,500		(14,256)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net of costs	14,064		29,539
Proceeds from exercise of stock options and warrants	—		268
Proceeds from Asset-Based Loan	14,550		—
Debt issuance costs	(1,472)		(100)
Payments on Eyce and DaVinci promissory notes	(2,791)		(294)
Payments on Real Estate Note	(7,958)		(120)
Repayment of Bridge Loan	(8,000)		—
Proceeds from termination of interest rate swap	145		—
Purchase consideration paid for Eyce LLC acquisition	(875)		—
Member distributions	—		(200)
Other	(128)		(222)
Net cash provided by financing activities	7,535		28,871
Effects of exchange rate changes on cash and restricted cash	(210)		193
Net (decrease) in cash and restricted cash	(2,663)		(17,220)
Cash and restricted cash, as of beginning of the period	12,857		30,435
Cash and restricted cash, as of end of the period	$	10,194	$	13,215

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(in thousands)


Reconciliation of cash and restricted cash to condensed consolidated balance sheets
	Nine months ended September 30,
	2022		2021
Beginning of the period
Cash	$	12,857	$	30,435
Restricted cash	—		—
Total cash and restricted cash, beginning of period	$	12,857	$	30,435

End of the period
Cash	$	8,039	$	13,215
Restricted cash	2,155		—
Total cash and restricted cash, end of period	$	10,194	$	13,215


Supplemental disclosures of cash flow information


Cash paid for amounts included in the measurement of lease liabilities	$	2,120	$	1,093
Lease liabilities arising from obtaining finance lease assets	$	—	$	119


Non-cash investing and financing activities:
Non-cash purchases of property and equipment	$	1,617	$	381
Issuance of Class A common stock for business acquisitions	$	3,486	$	125,496
Issuance of warrants and stock options for acquisition	$	—	$	13,182
Issuance of promissory note for business acquisition	$	—	$	2,503
Issuance of contingent consideration for acquisition	$	—	$	1,828
Decrease in non-controlling interest as a result of exchanges for Class A common stock	$	(10,291)	$	(12,150)
Decrease in non-controlling interest as a result of VIBES disposition	$	(1,789)	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GREENLANE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BUSINESS OPERATIONS AND ORGANIZATION

Organization

Greenlane Holdings, Inc. (“Greenlane” and, collectively with the Operating Company (as defined below) and its consolidated subsidiaries, the “Company”, "we", "us", and "our") was formed as a Delaware corporation on May 2, 2018. We are a holding company that was formed for the purpose of completing an underwritten initial public offering (“IPO”) of shares of our Class A common stock, $0.01 par value per share (“Class A common stock”), in order to carry on the business of Greenlane Holdings, LLC (the “Operating Company”). The Operating Company was organized under the laws of the state of Delaware on September 1, 2015, and is based in Boca Raton, Florida. Unless the context otherwise requires, references to the “Company” refer to us, and our consolidated subsidiaries, including the Operating Company.

We are the sole manager of the Operating Company and our principal asset is Common Units of the Operating Company (“Common Units”). As the sole manager of the Operating Company, we operate and control all of the business and affairs of the Operating Company, and we conduct our business through the Operating Company and its subsidiaries. We have a board of directors and executive officers, but no employees. All of our assets are held and all of the employees are employed by the Operating Company and its subsidiaries.

We have the sole voting interest in, and control the management of, the Operating Company, and we have the obligation to absorb losses of, and receive benefits from, the Operating Company, that could be significant. We determined that the Operating Company is a variable interest entity (“VIE”) and that we are the primary beneficiary of the Operating Company. Accordingly, pursuant to the VIE accounting model, beginning in the fiscal quarter ended June 30, 2019, we consolidated the Operating Company in our consolidated financial statements and reported a non-controlling interest related to the Common Units held by the members of the Operating Company (other than the Common Units held by us) on our consolidated financial statements.

On August 31, 2021, we completed our previously announced merger with KushCo Holdings, Inc. ("KushCo") and have included the results of operations of KushCo in our consolidated statements of operations and comprehensive loss from that date forward. As such, the KushCo financial information included in our condensed consolidated financial statements for the three and nine months ended September 30, 2021 is for the period commencing on August 31, 2021 (the date of the closing of the merger) through September 30, 2021. Also, KushCo financial information is included in our condensed consolidated financial statements for the three and nine months ended September 30, 2022. Immediately following the merger with KushCo, stockholders that held Class A common stock prior to the completion of the merger owned 51.9% and former KushCo stockholders owned 48.1% of the equity of the combined company on a fully diluted basis. In connection with the merger with KushCo, the Greenlane Certificate of Incorporation was amended and restated (the “A&R Charter”) in order to (i) increase the number of authorized shares of Greenlane Class B common stock, $0.0001 par value per share (the “Class B Common stock”), from 10 million shares to 30 million shares in order to effect the conversion of each outstanding share of Class C common stock, $0.0001 par value per share (the “Class C common stock”), into one-third of one share of Class B common stock, (ii) increase the number of authorized shares of Class A common stock from 125 million shares to 600 million shares, and (iii) eliminate references to the Class C common stock. Pursuant to the terms of an Agreement and Plan of Merger, dated as of March 31, 2021 (the "Merger Agreement") with KushCo, immediately prior to the consummation of the business combination, holders of Class C common stock received one-third of one share of Class B common stock for each share of Class C common stock held immediately prior to the closing of the merger.

We merchandise premium cannabis accessories, child-resistant packaging, specialty vaporization solutions and lifestyle products in the United States, Canada and Europe, serving a diverse and expansive customer base with more than 8,500 retail locations, including licensed cannabis dispensaries, smoke shops, and specialty retailers. We distribute to multi-state operators ("MSOs"), licensed producers ("LPs"), other retailers and brands through wholesale operations under our Industrial Goods business segment, and to consumers through both wholesale operations as well as e-commerce activities and our retail stores under our Consumer Goods business segment.

Our corporate structure is commonly referred to as an “Up-C” structure. The Up-C structure allows the members of the Operating Company to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity. One of these benefits is that future taxable income of the Operating Company that is allocated to its members will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the Operating Company entity level. Additionally, because the members may redeem their Common Units for shares of Class A common stock on a one-for-one basis or, at our option, for cash, the Up-C structure also provides the members with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.

In connection with our initial public offering, we entered into a Tax Receivable Agreement (the “TRA”) with the Operating Company and the Operating Company’s members (other than Greenlane Holdings, Inc.) and a Registration Rights (the

“Registration Rights Agreement”) with the Operating Company’s members. The TRA provides for the payment by us to the Operating Company’s members of 85.0% of the amount of tax benefits, if any, that we may actually realize (or in some cases, are deemed to realize) as a result of (i) the step-up in tax basis in our share of the Operating Company's assets resulting from the redemption of Common Units under the mechanism described above and (ii) certain other tax benefits attributable to payments made under the TRA. Pursuant to the Registration Rights Agreement, we have agreed to register the resale of shares of Class A common stock that are issuable to the Operating Company’s members upon redemption or exchange of their Common Units.

The A&R Charter and the Fourth Amended and Restated Operating Agreement of the Operating Company (the “Operating Agreement”) require that (a) we at all times maintain a ratio of one Common Unit owned by us for each share of our Class A common stock issued by us (subject to certain exceptions), and (b) the Operating Company at all times maintains (i) a one-to-one ratio between the number of shares of our Class A common stock issued by us and the number of Common Units owned by us, and (ii) a one-to-one ratio between the number of shares of our Class B common stock owned by the non-founder members of the Operating Company and the number of Common Units owned by the non-founder members of the Operating Company.

The following table sets forth the economic and voting interests of our common stock holders as of September 30, 2022:


Class of Common Stock (ownership)	Total Shares (1)*	Class A Shares (as converted) (2)*	Economic Ownership in the Operating Company (3)		Voting Interest in Greenlane (4)		Economic Interest in Greenlane (5)
Class A	7,470,005	7,470,005	98.1	%	98.1	%	100.0	%
Class B	148,161	148,161	1.9	%	1.9	%	—	%
Total	7,618,166	7,618,166	100.0	%	100.0	%	100.0	%


*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.
(1) Represents the total number of outstanding shares for each class of common stock as of September 30, 2022.
(2) Represents the number of shares of Class A common stock that would be outstanding assuming the exchange of all outstanding shares of Class B common stock upon redemption of all related Common Units. Shares of Class B common stock would be canceled, without consideration, on a one-to-one basis pursuant to the terms and subject to the conditions of the Operating Agreement.
(3) Represents the indirect economic interest in the Operating Company through the holders' ownership of common stock.
(4) Represents the aggregate voting interest in us through the holders' ownership of Common Stock. Each share of Class A common stock and Class B common stock entitles its holder to one vote per share on all matters submitted to a vote of our stockholders.
(5) Represents the aggregate economic interest in us through the holders' ownership of Class A common stock.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other future annual or interim period. Certain reclassifications have been made to prior year amounts or balances to conform to the presentation adopted in the current year.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts, the accounts of the Operating Company, and the accounts of the Operating Company's consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Restricted Cash

Restricted cash represents principally cash reserves that are maintained pursuant to the governing agreement of the Asset-Based Loan discussed in "Note 6 - Debt."

Reverse Stock Split

On August 4, 2022, we filed a Certificate of Amendment (the "Certificate of Amendment") to the A&R Charter with the Secretary of State of the State of Delaware, which effected a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Class A common stock and Class B common stock (collectively, the "Common Stock") at 5:01 PM Eastern Time on August 9, 2022. As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the Reverse Stock Split.

The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Split, as required by the terms of each security. The number of shares available to be awarded under our Amended and Restated 2019 Equity Incentive Plan have also been appropriately adjusted. See "Note 10 — Compensation Plans" for more information.

All share and per share amounts in these unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split, including reclassifying an amount equal to the reduction in par value of Common Stock to additional paid-in capital.

Liquidity

Our principal sources of liquidity at September 30, 2022 consisted of cash on hand, future cash anticipated to be generated from operations, the June 2022 Offering described in Note 9, the October 2022 Offering described in Note 13, and our ATM Program, each as described below.

We have an effective shelf registration statement on Form S-3 (the "Shelf Registration Statement") and may opportunistically conduct securities offerings from time to time in order to meet our liquidity needs. However, we may be unable to access the capital markets, including because of current market volatility and the performance of our stock price.

As described in further detail in "Note 9 - Stockholders' Equity," in August 2021, we established an "at-the-market" equity offering program (the "ATM Program") that provides for the sale of shares of our Class A common stock having an aggregate offering price of up to $50 million, from time to time. Net proceeds from sales of our shares of Class A common stock under the ATM Program are expected to be used for working capital and general corporate purposes. Since the launch of the ATM program in August 2021 and through September 30, 2022, we sold 972,624 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $12.7 million and paid fees to the sales agent of approximately $0.4 million. In connection with the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) with the SEC on March 31, 2022, the ATM Program became subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 ("Instruction I.B.6") because our public float was less than $75 million. For so long as our public float is less than $75 million, the aggregate market value of the shares of Class A common stock sold by us pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float.

Also as described in further detail in "Note 9 - Stockholders' Equity," on June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”), in a registered direct offering (the “June 2022 Offering”). The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million.

Following the completion of the June 2022 Offering, we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the restrictions under Instruction I.B.6 to Form S-3, which will limit our liquidity options in the capital markets.

As described in "Note 6 - Debt," in December 2021, we entered into a Secured Promissory Note (the "December 2021 Note") which was subsequently amended on June 30, 2022 (the “First Amendment”) and on July 14, 2022 (the "Second Amendment" and together with the December 2021 Note and the First Amendment, the "Bridge Loan"), with Aaron LoCascio, the Company’s former President and co-founder and a member of the Board, which provided for a loan of $8.0 million originally maturing on June 30, 2022. On July 14, 2022, we repaid $4.0 million of the aggregate principal amount due under the Bridge Loan, and on July 19, 2022, we repaid the remaining balance on the Bridge Loan in full. As a result, all obligations under the Bridge Loan have been satisfied.

On July 19, 2022, Warehouse Goods LLC ("Warehouse Goods"), a wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement and supporting documents (collectively, the “Sale Agreement”), to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which makes available to the Company a term loan of up to $15.0 million.

On September 22, 2022 (the “Closing Date”), 1095 Broken Sound Pwky LLC (“1095 Broken Sound”), our wholly owned subsidiary, consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound and ASC Capital LLC (the “HQ Purchaser”) whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our headquarters building to the HQ Purchaser for total consideration of $9.6 million in cash (collectively, the “HQ Transaction”). On the Closing Date, the Company used the proceeds from the HQ Transaction to repay the remainder of the mortgage on the headquarters building in full. The remaining proceeds will be used for general corporate purposes. For more information on the HQ Transaction, see "Note 6 - Debt."

On October 13, 2022, we entered into a Settlement Agreement (the “Settlement Agreement”) with a third-party vendor (the “Vendor”) for the repayment of approximately $1.8 million in liabilities (collectively, the “Remaining Liabilities”) due to the Vendor relating to previously purchased inventory. As previously disclosed and in connection with the our ongoing discussions with the Vendor, on July 18, 2022, we paid $1.0 million of the approximately $6.0 million balance due to the Vendor in cash and during the period of July 26, 2022 through July 31, 2022, returned approximately $1.1 million in inventory to the Vendor, which was accepted by the Vendor and was credited against the remaining outstanding balance owed by us to the Vendor. The Settlement Agreement provides for a payment plan pursuant to which the we have agreed to repay the Remaining Liabilities in weekly installments commencing on October 14, 2022. Pursuant to the terms of the Settlement Agreement, the Remaining Liabilities will be repaid in full on December 9, 2022.

On October 24, 2022, Warehouse Goods sold 38,839 shares of common stock of High Tide Inc. ("High Tide") (Nasdaq: HITI) for total consideration of approximately $0.05 million.

On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, pre-funded warrants to purchase up to 1,377,780 shares of our Class A common stock (the “October 2022 Pre-Funded Warrants”) and warrants to purchase up to 16,666,670 shares of our Class A common stock (the “October 2022 Standard Warrants” and, together with the October 2022 Pre-Funded Warrants, the “October 2022 Warrants”), in a public offering (the “October 2022 Offering”). The shares of Class A common stock and October 2022 Warrants were sold in Units (the “October 2022 Units”), with each unit consisting of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 Units were offered pursuant to our registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission on October 27, 2022 (the "S-1 Registration Statement"). The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. For more information regarding the October 2022 Offering, please see "Note 13 - Subsequent Events."

On November 3, 2022, Merger Sub Gotham 2, LLC ("Merger Sub Gotham"), our wholly owned subsidiary, sold its interest in XS Financial Inc. ("XS Financial") to certain purchasers for total consideration of approximately $0.65 million, minus certain fees. On the same day, we also entered into that certain Lease Termination Agreement, dated as of October 31, 2022 solely for reference purposes (the "Lease Termination Agreement"), by and between us and Warland Investments Company (the "Landlord"), which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California (collectively, the "Lease Termination"). Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.46 million as an early termination fee in consideration for the Landlord agreeing to terminate all of our remaining obligations under the Cypress lease. We expect the Lease Termination to result in approximately $1.7 million in savings, although we can provide no assurances as to the total amount of savings ultimately realized from the Lease Termination.

We believe that our cash on hand will be sufficient to fund our working capital and capital expenditure requirements, as well as our debt repayments and other liquidity requirements associated with our existing operations, for at least the next 12 months.

Use of Estimates

Conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts in our condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. U.S. GAAP requires us to make estimates and judgments in several areas. Such areas include, but are not limited to: the collectability of accounts receivable; the allowance for slow-moving or obsolete inventory; the realizability of deferred tax assets; the fair value of goodwill; the fair value of contingent consideration arrangements; the useful lives of intangible assets and property and equipment; the calculation of our VAT taxes receivable and VAT taxes, fines, and penalties payable; our loss contingencies, including our TRA liability; and the valuation and assumptions underlying equity-based compensation. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") a global pandemic. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic, including the possible resurgence of new strains. Our estimates may change as new

events occur and additional information emerges, and such changes are recognized or disclosed in our condensed consolidated financial statements.

Valuation of Goodwill and Indefinite-Lived Intangible Assets

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Such valuations require management to make significant estimates and assumptions. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

We evaluate goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year and at interim dates if indicators of impairment exist. Goodwill is assessed for impairment at the reporting unit level.

Due to declines in the Company's stock price as well as changes to our estimates and assumptions of the expected future cash flows of our Consumer Goods and Industrial Goods reporting units, management concluded that a triggering event occurred in the third quarter of 2022, requiring a quantitative impairment test of our goodwill for both of our reporting units. Based on this assessment, we concluded that the fair value of each of our two reporting units was below their respective carrying value. Furthermore, we recorded an impairment charge related to our indefinite-lived intangible assets. The following table presents impairment charges to goodwill and indefinite lived intangibles recognized during the three months ended September 30, 2022 based on the analysis described:


(in thousands)	Industrial Goods				Consumer Goods
	Goodwill		Indefinite-Lived Intangibles		Goodwill		Indefinite-Lived Intangibles
At December 31, 2021	$	24,332	$	29,500	$	17,528	$	—
Impairment charge	$	(24,332)	$	(24,900)	$	(17,528)	$	—
As of September 30, 2022	$	—	$	4,600	$	—	$	—

Voluntary Change in Accounting Principle

During the first quarter of 2022, we made a voluntary change in accounting principle to classify outbound shipping and handling costs associated with the distribution of products to our customers as a component of "general and administrative" costs within our condensed consolidated statements of operations and comprehensive loss. These costs were previously recorded as a component of "cost of sales" within our condensed consolidated statements of operations and comprehensive loss. We made the voluntary change in accounting principle because we believe the classification of outbound shipping and handling costs within "general and administrative" costs better reflects the selling effort and enhances the comparability of our financial statements with many of our industry peers. In accordance with U.S. GAAP, the change has been reflected in the condensed consolidated statements of operations and comprehensive loss through retrospective application as follows:


	For the three months ended September 30, 2021						For the nine months ended September 30, 2021
(in thousands)	Prior to Change		Effect of Change		As Adjusted		Prior to Change		Effect of Change		As Adjusted
Cost of sales	$	41,192	$	(1,365)	$	39,827	$	94,832	$	(3,889)	$	90,943
Gross profit	$	122	$	1,365	$	1,487	$	15,206	$	3,889	$	19,095
General and administrative	$	15,430	$	1,365	$	16,795	$	30,885	$	3,889	$	34,774
Total operating expenses	$	27,821	$	1,365	$	29,186	$	56,428	$	3,889	$	60,317

Segment Reporting

We manage our global business operations through our operating and reportable business segments. Due to our recent merger with KushCo, we reassessed and updated our operating segments. Therefore, beginning with the fourth quarter of 2021, we determined we had following two reportable operating business segments: (1) Industrial Goods, which largely comprises KushCo's legacy operations across the United States and Canada, and (2) Consumer Goods, which largely comprises Greenlane's legacy operations across the United States, Canada, and Europe. Our reportable segments have been identified based on how our chief operating decision maker ("CODM"), manages our business, makes resource allocation and operating

decisions, and evaluates operating performance. Our CODM is our Chief Executive Officer ("CEO"). These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021. Segment disclosures within this Form 10-Q have been retrospectively restated to reflect the change in segments. See “Note 12—Segment Reporting.”

Revenue Recognition

Revenue under bill-and-hold arrangements was $0 for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.5 million for the three and nine months ended September 30, 2021, respectively. Storage fees charged to customers for bill-and-hold arrangements are recognized as invoiced. Such fees were not significant for the three and nine months ended September 30, 2022 and 2021.

Our liability for returns, which is included within "Accrued expenses and other current liabilities" in our condensed consolidated balance sheets, was approximately $0.6 million and $1.0 million as of September 30, 2022 and December 31, 2021, respectively. The recoverable cost of merchandise estimated to be returned by customers, which is included within "Other current assets" in our condensed consolidated balance sheets, was approximately $0.2 million as of September 30, 2022 and December 31, 2021, respectively.

For the three and nine months ended September 30, 2022, one customer represented approximately 24% and 20% of our net sales. No single customer represented more than 6% of our net sales for the three and nine months ended September 30, 2021. As of September 30, 2022, two customers represented approximately 21%, and 10% of accounts receivable, respectively. As of December 31, 2021, two customers represented approximately 13% and 11% of accounts receivable, respectively.

Value Added Taxes

During the third quarter of 2020, as part of a global tax strategy review, we determined that our European subsidiaries based in the Netherlands, which we acquired on September 30, 2019, had historically collected and remitted value added tax ("VAT") payments, which related to direct-to-consumer sales to other European Union ("EU") member states, directly to the Dutch tax authorities. In connection with our subsidiaries' payment of VAT to Dutch tax authorities rather than other EU member states, we may become subject to civil or criminal enforcement actions in certain EU jurisdictions, which could result in penalties.

We performed an analysis of the VAT overpayments to the Dutch tax authorities, which we expected to be refunded to us, and VAT payable to other EU member states, including potential fines and penalties. Based on this analysis, we recorded VAT payable of approximately $0.4 million and $2.5 million relating to this matter within "Accrued expenses and other current liabilities" in our condensed consolidated balance sheet as of September 30, 2022 and December 31, 2021, respectively.

Pursuant to the purchase and sale agreement by which we acquired our European subsidiaries, the sellers are required to indemnify us against certain specified matters and losses, including any and all liabilities, claims, penalties and costs incurred or sustained by us in connection with non-compliance with tax laws in relation to activities of the sellers. The indemnity (or indemnification receivable) is limited to an amount equal to the purchase price under the purchase and sale agreement. During the three and nine months ended September 30, 2022, we recognized a gain of approximately $0.2 million and $2.0 million, respectively, within "general and administrative expenses" in our condensed consolidated statements of operations and comprehensive loss, which represented the partial reversal of a charge previously recognized based on the difference between the VAT payable and the VAT receivable and indemnification asset, as the indemnification asset became probable of recovery based on the reduction in our previously estimated VAT liability for penalties and interest based on our voluntary disclosure to, and ongoing settlement with, the relevant tax authorities in the EU member states.

Management intends to pursue recovery of all additional losses from the sellers to the full extent of the indemnification provisions of the purchase and sale agreement, however, the collectability of such additional indemnification amounts may be subject to litigation and may be affected by the credit risk of indemnifying parties, and are therefore subject to significant uncertainties as to the amount and timing of recovery.

As noted above, we have voluntarily disclosed VAT owed to several relevant tax authorities in the EU member states, and believe in doing so we will reduce our liability for penalties and interest. Nonetheless, we may incur expenses in future periods related to such matters, including litigation costs and other expenses to defend our position. The outcome of such matters is inherently unpredictable and subject to significant uncertainties. Refer to "Note 7—Commitments and Contingencies" for additional discussion regarding our contingencies.

Recently Issued Accounting Guidance Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances rather than as reductions to the amortized cost of the securities. This standard is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2022 for filers that are eligible to be smaller reporting companies under the SEC's definition. Early adoption is permitted. We do not believe the adoption of this new guidance will have a material impact on our consolidated financial statements and disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). We are still assessing this standard’s impact on our consolidated financial statements.

NOTE 3. BUSINESS ACQUISITIONS AND DISPOSITIONS

Supplemental Unaudited Pro Forma Financial Information

On March 2, 2021, we acquired substantially all the assets of Eyce LLC ("Eyce"), a designer and manufacturer of silicon pipes, bubblers, rigs, and other smoking and vaporization-related accessories and merchandise.

On August 31, 2021, we completed our previously announced merger with KushCo pursuant to the terms of the Merger Agreement dated as of March, 31, 2021.

On November 29, 2021, we acquired substantially all the assets of Organicix, LLC (d/b/a and hereinafter referred to as “DaVinci”), a leading developer and manufacturer of premium portable vaporizers.

The following table presents pro forma results for the three and nine months ended September 30, 2022 and 2021 as if our acquisition of Eyce and DaVinci, along with the closing of the merger with KushCo, had occurred on January 1, 2021, and Eyce, DaVinci, and KushCo's results had been included in our consolidated results beginning on that date (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
	(unaudited)				(unaudited)
Net sales	$	28,680	$	61,431	$	115,130	$	191,516
Cost of sales	23,711		71,286		96,094		171,809
Gross profit	4,969		(9,855)		19,036		19,707
Net loss	$	(79,215)	$	(60,251)	$	(112,445)	$	(90,256)

The pro forma amounts have been calculated after applying our accounting policies to the financial statements of Eyce and KushCo and adjusting the combined results of Greenlane, Eyce, DaVinci and KushCo (a) to remove Eyce and DaVinci product sales to us and to remove the cost incurred by us related to products purchased from Eyce and DaVinci prior to the acquisition, and (b) to reflect the increased amortization expense that would have been charged assuming intangible assets identified in the acquisitions of Eyce, DaVinci, and KushCo had been recorded on January 1, 2021.

The impact of the Eyce and DaVinci acquisition and the KushCo merger on the actual results reported by us in subsequent periods may differ significantly from that reflected in this pro forma information for a number of reasons, including but not limited to, non-achievement of the expected synergies from these combinations and changes in the regulatory environment. As a result, the pro forma information is not necessarily indicative of what our financial condition or results of operations would have been had the acquisitions been completed on the applicable date of this pro forma financial information. In addition, the pro forma financial information does not purport to project our future financial condition and results of operations.

Amended Eyce APA

On April 7, 2022, we entered into an amendment to that certain Asset Purchase Agreement, dated March 2, 2021 (the “Amended Eyce APA”), by and between Eyce and Warehouse Goods to accelerate the issuance of shares of Class A common stock issuable to Eyce under the agreement upon the attainment of certain EBITDA and revenue benchmarks (the “Amended 2022 Contingent Payment”), in an amount equal to $0.9 million. We issued 71,721 shares of Class A common stock to Eyce under the Amended 2022 Contingent Payment, which vest ratably in seven quarterly tranches starting on July 1, 2022, such that on January 1, 2024 (the “Vesting Date”), all shares issued to Eyce under the Amended 2022 Contingent Payment will have vested. The shares of Class A common stock issued under the Amended 2022 Contingent Payment are subject to certain forfeiture restrictions tied to the continued employment of certain Eyce personnel with the Company through the Vesting Date.

The Amended Eyce APA also provided for the payment of $0.9 million in cash in four equal installments on April 1, 2023, July 1, 2023, October 1, 2023 and January 1, 2024, contingent on the achievement of certain deliverables outlined in the Amended Eyce APA and the continued employment of certain Eyce personnel.

The transaction was accounted for separately from acquisition accounting for the Eyce business combination. Specifically, we recorded a gain of approximately $0 and $0.3 million, respectively, within "other income (expense), net" in our condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2022 to write-off the balance of the Eyce 2022 Contingent Payment. Also, we recorded approximately $0.4 million and $0.9 million, respectively, in compensation expense related to the Amended 2022 Contingent Payment within "salaries, benefits and payroll taxes" in our condensed consolidated statement of operations and comprehensive income for the three and nine months ended September 30, 2022.

VIBES Sale

On July 19, 2022, Warehouse Goods entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash. The transactions contemplated by the Sale Agreement were completed on July 19, 2022, immediately following the signing of the Sale Agreement. In conjunction with and as a result of the disposition of and deconsolidation of our interest in VIBES Holdings LLC, we recorded a gain of $2.0 million for the three months ended September 30, 2022, which is included as an offset in "general and administrative expenses" in our condensed consolidated statements of operations and comprehensive loss, as well as a reduction to non-controlling interest on our condensed consolidated balance sheet as of September 30, 2022 of $1.8 million. In conjunction with the Sale Agreement, we agreed to return inventory to VIBES with a carrying value of approximately $2.4 million. This obligation is recorded within "accrued expenses and other current liabilities" in our condensed consolidated balance sheet as of September 30, 2022, see "Note 8- Supplemental Financial Statement Information."

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The carrying amounts for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain accrued expenses and other assets and liabilities, approximate fair value due to the short-term nature of these instruments.

As of September 30, 2022, we had equity securities and contingent consideration that are required to be measured at fair value on a recurring basis.

Our equity securities that are required to be measured at fair value on a recurring basis consist of investments in XS Financial and High Tide We have determined that our ownership does not provide us with significant influence over the operations of these entities. Accordingly, we account for our investment in these entities as equity securities, and we record changes in the fair value of these investments in "other income (expense), net" in our condensed consolidated statements of operations and comprehensive loss.

Subsequent to September 30, 2022, Merger Sub Gotham 2 and Warehouse Goods sold their interests in XS Financial and High Tide for total consideration of approximately $0.7 million. See "Note 13 - Subsequent Events" for additional details.

Our financial instruments measured at fair value on a recurring basis were as follows at the dates indicated:


	Condensed Consolidated Balance Sheet Caption	Fair Value at September 30, 2022
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Equity securities	Other assets	$	705	$	—	—		705
Total Assets		$	705	$	—	$	—	$	705
Liabilities:
Contingent consideration - current	Accrued expenses and other current liabilities	$	—	$	—	1,300		1,300
Total Liabilities		$	—	$	—	$	1,300	$	1,300


	Condensed Consolidated Balance Sheet Caption	Fair Value at December 31, 2021
(in thousands)		Level 1		Level 2		Level 3		Total
Assets:
Equity securities	Other assets	$	1,919	$	—	$	—	$	1,919
Total Assets		$	1,919	$	—	$	—	$	1,919
Liabilities:
Interest rate swap contract	Other liabilities	$	—	$	288	$	—	$	288
Contingent consideration - current	Accrued expenses and other current liabilities	—		—		5,641		5,641
Contingent consideration - long-term	Other long-term liabilities	—		—		1,216		1,216
Total Liabilities		$	—	$	288	$	6,857	$	7,145

The estimated fair values of our financial instruments have been determined using available market information and what we believe to be appropriate valuation methodologies. There were no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2022 and 2021, respectively.

Derivative Instrument and Hedging Activity

On July 11, 2019, we entered into an interest rate swap contract to manage our risk associated with the interest rate fluctuations on the Company's floating rate Real Estate Note described in "Note 6 - Debt." The counterparty to this instrument was a reputable financial institution. Our interest rate swap contract was designated as a cash flow hedge at the inception date, and was previously reflected at its fair value in our condensed consolidated balance sheets.

The fair value of our interest rate swap liability was determined based on the present value of expected future cash flows. Since our interest rate swap value was based on the LIBOR forward curve and credit default swap rates, which were observable at commonly quoted intervals for the full term of the swap, it was considered a Level 2 measurement.

Beginning with the second quarter of 2022, we discontinued hedge accounting for the interest rate swap contract. During the three and nine months ended September 30, 2022, we recorded a gain of approximately $0.1 million based on the change in fair value of the interest rate swap contract within "interest expense" in our condensed consolidated statement of income and comprehensive loss. During the second quarter of 2022, we also reclassified the related accumulated other comprehensive income balance of $0.3 million to "interest expense" in our condensed consolidated statement of income and comprehensive loss. Refer to "Note 8 - Supplemental Financial Information" for further details on the components of accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021, respectively.

The unrealized loss on the derivative instrument prior to the discontinuation of hedge accounting was included within "Other comprehensive income (loss)" in our condensed consolidated statement of operations and comprehensive loss.

There was no measure of hedge ineffectiveness and no reclassifications from other comprehensive loss into interest expense for the three and nine months ended September 30, 2021. In August 2022, we terminated the interest swap contract.

Contingent Consideration

Each period we revalue our contingent consideration obligations associated with business acquisitions to their fair value. The estimate of the fair value of contingent consideration is determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period, and therefore represents a Level 3 measurement. Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the contingent consideration liability. Changes in the fair value of contingent consideration are included within "Other income (expense), net" in our condensed consolidated statements of operations and comprehensive loss.

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:


(in thousands)	Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	6,857
Eyce 2021 Contingent Payment settlement in Class A common stock	(875)
Eyce 2021 Contingent Payment settlement in cash	(875)
DaVinci 2021 Contingent Payment settlement in Class A common stock	(2,611)
Write-off of Eyce 2022 Contingent Payment in conjunction with the Amended Eyce APA	(267)
Gain from fair value adjustments included in results of operations	(929)
Balance September 30, 2022	$	1,300


(in thousands)	Nine Months Ended September 30, 2021
Balance at December 31, 2020	$	—
Contingent consideration issued for Eyce acquisition	1,828
Loss from fair value adjustments included in results of operations	$	755
Balance at September 30, 2021	$	2,583

Equity Securities Without a Readily Determinable Fair Value

Our investment in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc., Sun Grown Packaging, LLC ("Sun Grown") and Vapor Dosing Technologies, Inc. ("VIVA"). We determined that our ownership interests do not provide us with significant influence over the operations of these investments. Accordingly, we account for our investments in these entities as equity securities. Airgraft Inc., Sun Grown, and VIVA are private entities and their equity securities do not have a readily determinable fair value. We elected to measure these equity securities under the measurement alternative election at cost minus impairment, if any, with adjustments through earnings for observable price changes in orderly transactions for the identical or similar investment of the same issuer. We acquired our investments in Sun Grown and VIVA as part of our merger with KushCo, which we completed in August 2021. We did not identify any fair value adjustments related to these equity securities during the three and nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and December 31, 2021, the carrying value of our investment in equity securities without a readily determinable fair value was approximately $2.5 million, respectively, included within "Other assets" in our condensed consolidated balance sheets. The carrying value included a fair value adjustment of $1.5 million based on an observable price change recognized during the year ended December 31, 2019.

NOTE 5. LEASES

Greenlane as a Lessee

As of September 30, 2022, we had facilities financed under operating leases consisting of warehouses, offices, and retail stores, with lease term expirations between 2023 and 2027. Lease terms are generally three to seven years for warehouses, office space and retail store locations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides details of our future minimum lease payments under operating lease liabilities recorded in our condensed consolidated balance sheet as of September 30, 2022. The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.


(in thousands)	Operating Leases
2022	$	683
2023	2,112
2024	1,427
2025	1,321
2026	151
Thereafter	14
Total minimum lease payments	$	5,708
Less: imputed interest	219
Present value of minimum lease payments	$	5,489
Less: current portion	2,462
Long-term portion	$	3,027

Rent expense under operating leases was approximately $0.6 million and $2.1 million for three and nine months ended September 30, 2022, respectively, and approximately $0.5 million and $1.2 million for the three and nine months ended September 30, 2021, respectively.

The following expenses related to our operating leases were included in "general and administrative" expenses within our condensed consolidated statements of operations and comprehensive loss:


	For the nine months ended September 30,
(in thousands)	2022		2021



Operating lease costs
Operating lease cost	2,120		1,172
Variable lease cost	696		233
Total lease cost	$	2,816	$	1,405

The table below presents lease-related terms and discount rates as of September 30, 2022:


	September 30, 2022
Weighted average remaining lease terms
Operating leases	2.8 years

Weighted average discount rate
Operating leases	2.7	%

Greenlane as a Lessor

The following table represents the maturity analysis of undiscounted cash flows related to lease payments, which we expect to receive from our existing operating lease agreements related to our sublease in California:


Rental Income	(in thousands)
Remainder of 2022	$	144,641
2023	385,709
2024 and thereafter	—


Total	$	530,350

NOTE 6. DEBT

Our debt balance, excluding operating lease liabilities and finance lease liabilities, consisted of the following amounts at the dates indicated:


(in thousands)	September 30, 2022		December 31, 2021
Real Estate Note	$	—	$	7,958
Bridge Loan	—		8,000
Asset-Based Loan	15,000		—
DaVinci Promissory Note	3,155		5,000
Eyce Promissory Note	647		1,592
	18,802		22,550
Less unamortized debt issuance costs	(2,158)		(328)
Less current portion of debt	(3,156)		(11,615)


Debt, net, excluding operating and finance leases and liabilities held for sale	$	13,488	$	10,607

Real Estate Note

On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries financed the purchase of a building, which served as our corporate headquarters, through a real estate term note (the “Real Estate Note”) in the principal amount of $8.5 million. Our obligations under the Real Estate Note were secured by a mortgage on the property.

On August 8, 2022, we entered into a note, mortgage and loan modification agreement (the "Real Estate Note Amendment"), which amended the maturity date of the Real Estate Note to reflect a maturity date of December 1, 2022, whereupon all principal and accrued interest were to become due and payable, in full.

In September 2022, 1095 Broken Sound consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound and the HQ Purchaser whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our headquarters building to the HQ Purchaser for total proceeds of $9.6 million in cash. On the Closing Date, the Company used a portion of the proceeds from the HQ Transaction to repay the remainder of the Real Estate Note in full. There was no remaining balance related to the Real Estate Note on our consolidated balance sheet as of September 30, 2022.

Eyce Promissory Note

In March 2021, one of the Operating Company's wholly-owned subsidiaries financed a portion of the consideration of the acquisition of Eyce through the issuance of an unsecured promissory note (the "Eyce Promissory Note") in the principal amount of $2.5 million. Principal payments plus accrued interest at a rate of 4.5% are due quarterly through April 2023.

DaVinci Promissory Note

In November 2021, one of the Operating Company's wholly-owned subsidiaries financed the acquisition of DaVinci through the issuance of an unsecured promissory note (the "DaVinci Promissory Note") in the principal amount of $5.0 million. Principal payments plus accrued interest at a rate of 4.0% are due quarterly through October 2023.

Bridge Loan

In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of the Company, in which Mr. LoCascio provided us with a bridge loan in the principal amount of $8.0 million (the “December 2021 Note”). The December 2021 Note accrued interest at a rate of 15.0% is due monthly, and the principal amount was originally due in full on June 30, 2022. We incurred $0.3 million of debt issuance costs related to the December 2021 Note, which were recorded as a direct deduction from the carrying amount of the December 2021 Note, and which were amortized over the term of the December 2021 Note through interest expense. The December 2021 Note was secured by a continuing security interest in all of our assets and properties whether then or thereafter existing or required, including our inventory and receivables (as defined under the Universal Commercial Code) and included negative covenants restricting our ability to incur further indebtedness and engage in certain asset dispositions until the earlier of the maturity date or the December 2021 Note being fully repaid.

On June 30, 2022, we entered into the First Amendment to the December 2021 Note (the "First Amendment"), which extended the maturity date of the December 2021 Note to July 14, 2022. On July 14, 2022, we entered into the Second Amendment to the December 2021 Note (the “Second Amendment” and together with the December 2021 Note, the "Bridge Loan"), which provided for the extension of the maturity date of the Bridge Loan from July 14, 2022 to July 19, 2022. In connection with the entry into the Second Amendment, we repaid $4.0 million of the aggregate principal amount due under the Bridge Loan on July

14, 2022, with the remainder due at maturity. On July 19, 2022, we repaid the remaining balance on the Bridge Loan in full, and, as a result, all obligations under the Bridge Loan have been satisfied.

Asset-Based Loan

On August 9, 2022, we entered into an asset-based loan pursuant to that certain Loan and Security Agreement, dated as of August 8, 2022 (the “Loan Agreement”), by and among the Company, certain subsidiaries of the Company (the “Guarantors”), the parties thereto from time to time as lenders (the “Lenders”), and WhiteHawk Capital Partners LP, as the agent for the Lenders.

Pursuant to the Loan Agreement, the Lenders agreed to make available to us a term loan of up to $15.0 million on the terms and conditions set forth therein and the other Financing Agreements (as defined therein). As of September 30, 2022, of the total term loan amount, $2 million is located in a blocked account, which is classified as "restricted cash" on our condensed consolidated balance sheet as of September 30, 2022, and which will release the funds when permitted by the borrowing base certificate. Subject to certain exceptions described in the Loan Agreement, the Company and the Guarantors agreed to pledge all of their assets as collateral. The maturity date of the Asset-Based Loan is the third anniversary of the Closing Date (the "Maturity Date").

The Asset-Based Loan accrues interest at the prime rate plus 8.0%, and interest payments are due monthly. Beginning with the fiscal quarter ending September 30, 2023, and for each fiscal quarter thereafter until the Maturity Date, quarterly payments of $0.3 million are due, with a final payment of all remaining outstanding principal and accrued interest due on the Maturity Date.

We incurred $1.5 million of debt issuance costs related to the Asset-Based Loan, as well as an original issue discount of $0.5 million, which were recorded as a direct deduction from the carrying amount of the Asset-Based Loan, and which are amortized over the term of the Asset-Based Loan through interest expense. The Asset-Based Loan contains customary covenants and restrictions, including, without limitation, covenants that require us to comply with laws, restrictions on our ability to incur additional indebtedness, and various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under the Asset-Based Loan and execution upon the collateral securing obligations under the Asset-Based Loan. As of September 30, 2022, we were in compliance with the Asset-Based Loan covenants.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In the ordinary course of business, we are involved in various legal proceedings involving a variety of matters. We do not believe there are any pending legal proceedings that will have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

Other Commitments and Contingencies

We are potentially subject to claims related to various non-income taxes (such as sales, value added, consumption, and similar taxes) from various tax authorities, including in jurisdictions in which we already collect and remit such taxes. If the relevant taxing authorities were successfully to pursue these claims, we could be subject to significant additional tax liabilities.

NOTE 8. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Accrued Expenses and Other Current Liabilities

The following table summarizes the composition of accrued expenses and other current liabilities as of the dates indicated:


(in thousands)	September 30, 2022		December 31, 2021

VAT payable (including amounts related to VAT matter described in Note 2)	$	2,745	$	4,393
Contingent consideration	1,300		5,641
Accrued employee compensation	5,094		6,055
Accrued professional fees	906		1,700
Refund liability (including accounts receivable credit balances)	782		1,481
Accrued construction in progress (ERP)	290		1,061
Sales tax payable	647		1,034
VIBES - assets pending distribution (Note 3)	2,432		—

Other	6,483		3,932
	$	20,679	$	25,297

Customer Deposits

For certain product offerings such as child-resistant packaging, closed-system vaporization solutions and custom-branded retail products, we may receive a deposit from the customer (generally 25% - 50% of the total order cost, but the amount can vary by customer contract), when an order is placed by a customer. We typically complete orders related to customer deposits within one to six months from the date of order, depending on the complexity of the customization and the size of the order, but the order completion timeline can vary by product type and terms of sale with each customer. Changes in our customer deposits liability balance during the nine months ended September 30, 2022 were as follows:


(in thousands)	Customer Deposits
Balance as of December 31, 2021	$	7,924
Increases due to deposits received, net of other adjustments	10,238
Revenue recognized	(13,639)
Balance as of September 30, 2022	$	4,523

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) for the periods presented were as follows:


(in thousands)	Foreign Currency Translation		Unrealized Gain or (Loss) on Derivative Instrument		Total
Balance at December 31, 2021	$	282	$	42	$	324
Other comprehensive income (loss)	(212)		358		146
Less: Reclassification adjustment for (gain) loss included in net loss (Note 4)	—		(332)		(332)
Less: Other comprehensive (income) loss attributable to non-controlling interest	(17)		(68)		(85)
Balance at September 30, 2022	$	53	$	—	$	53


(in thousands)	Foreign Currency Translation		Unrealized Gain or (Loss) on Derivative Instrument		Total
Balance at December 31, 2020	$	183	$	(154)	$	29
Other comprehensive income (loss)	(59)		256		197
Less: Other comprehensive (income) loss attributable to non-controlling interest	20		(154)		(134)
Balance at September 30, 2021	$	144	$	(52)	$	92

Supplier Concentration

Our four largest vendors accounted for an aggregate of approximately 51.9% and 53.2% of our total net sales and 66.9% and 72.6% of our total purchases for the three and nine months ended September 30, 2022, respectively, and an aggregate of approximately 29.2% and 22.8% of our total net sales and 53.2% and 84.0%. of our total purchases for the three and nine months ended September 30, 2021, respectively. We expect to maintain our relationships with these vendors.

Related Party Transactions

Nicholas Kovacevich, our Chief Executive Officer, and Dallas Imbimbo, who served on our Board prior to his resignation on April 8, 2022, own capital stock of Unrivaled Brands Inc. (“Unrivaled”) and serve on the Unrivaled board of directors. Net sales to Unrivaled totaled approximately $0 and $0.4 million for the three and nine months ended September 30, 2022, respectively, and $0 both for the three and nine months ended September 30, 2021. Total gross accounts receivable due from Unrivaled were approximately $0.4 million and $0.4 million as of September 30, 2022 and December 31, 2021, respectively.

Adam Schoenfeld, co-founder and a current director of the Company, has a significant ownership interest in one of our customers, Universal Growing. Net sales to Universal Growing totaled approximately $0.0 million and $0.2 million for the three and nine months ended September 30, 2022, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. Total gross accounts receivable due from Universal Growing as of September 30, 2022 and December 31, 2021 were de minimis.

In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of the Company, with respect to the $8.0 million Bridge Loan described under Note 6 above. On June 30, 2022, we entered into the First Amendment to the Secured Promissory Note, which provided for the extension of the maturity date of the Secured Promissory Note from June 30, 2022 to July 14, 2022. On July 19, 2022, we fully repaid the Bridge Loan and as a result, all obligations under the Bridge Loan have been satisfied.

NOTE 9. STOCKHOLDERS’ EQUITY

Shares of our Class A common stock have both voting interests and economic interests (i.e., the right to receive distributions or dividends, whether cash or stock, and proceeds upon dissolution, winding up or liquidation), while shares of our Class B common stock have voting interests but no economic interests. Each share of our Class A common stock and Class B common stock entitles the record holder thereof to one vote on all matters on which stockholders generally are entitled to vote, and except as otherwise required in the A&R Charter, the holders of Common Stock will vote together as a single class on all matters (or, if any holders of our preferred stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of preferred stock).

Effective August 9, 2022, we completed a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Class A common stock and Class B common stock (collectively, the "Common Stock"), as further described in "Note 2 - Summary of Significant Accounting Policies." As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the Reverse Stock Split.

The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All share and per share amounts in these unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split, including reclassifying an amount equal to the reduction in par value of Common Stock to additional paid-in capital.

Non-Controlling Interest

As discussed in “Note 1—Business Operations and Organization,” we consolidate the financial results of the Operating Company in our condensed consolidated financial statements and report a non-controlling interest related to the Common Units held by non-controlling interest holders. As of September 30, 2022, we owned 98.1% of the economic interests in the Operating Company, with the remaining 1.9% of the economic interests owned by non-controlling interest holders. The non-controlling interest in the accompanying condensed consolidated statements of operations and comprehensive loss represents the portion of the net loss attributable to the economic interest in the Operating Company held by the non-controlling holders of Common Units calculated based on the weighted average non-controlling interests’ ownership during the periods presented.

At-the-Market Equity Offering

In August 2021, we established an "at-the-market" equity offering program (the "ATM Program") that provides for the sale of shares of our Class A common stock having an aggregate offering price of up to $50 million, from time to time, through Cowen and Company, LLC ("Cowen"), as the sales agent. Net proceeds from sales of our shares of Class A common stock under the ATM Program are expected to be used for working capital and general corporate purposes.

Sales of our Class A common stock under the ATM Program may be made by means of transactions that are deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on the Nasdaq Global Market or sales made to or through a market maker or through an electronic communications network. We are under no obligation to offer and sell shares of our Class A common stock under the ATM Program.

Shares of our Class A common stock will be issued pursuant to our effective shelf registration statement on Form S-3 (File No. 333-257654), and a prospectus supplement relating to the Class A common stock that was filed with the Securities and Exchange Commission on April 18, 2022. Pursuant to Instruction I.B.6, in no event will the Company sell Class A common stock through the ATM Program with a value exceeding more than one-third of the Company’s “public float” (the market value of the Company’s Class A common stock and any other equity securities that it issues in the future that are held by non-affiliates) in any twelve-month period so long as the Company’s public float remains below $75.0 million.

On April 18, 2022, we entered into Amendment No. 1 (the “Amendment”) to the sales agreement dated August 2, 2022 with Cowen. The purpose of the Amendment was to add the limitations imposed on the ATM Program by Instruction I.B.6 to the sales agreement. At the time of our entry into the Amendment, approximately $38.7 million in shares remained available for issuance under the ATM Program.

Following the completion of the June 2022 Offering we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the restrictions under Instruction I.B.6 to Form S-3, which will limit our liquidity options in the capital markets.

The table below summarizes sales of our Class A common stock under the ATM program:


($ in thousands)	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022		August 2021 (Inception) through September 30, 2022
Class A shares sold*	—		852,562		972,624
Gross proceeds	$	—	$	9,303	$	12,684
Net proceeds	$	—	$	9,024	$	12,303
Fees paid to sales agent	$	—	$	279	$	381

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

Common Stock and Warrant Offerings

August 2021 Offering

On August 9, 2021, we entered into securities purchase agreements with certain accredited investors, pursuant to which we agreed to issue and sell an aggregate of 210,000 shares of our Class A common stock, pre-funded warrants to purchase up to 296,329 shares of our Class A common stock (the “August 2021 Pre-Funded Warrants”) and warrants to purchase up to 303,797 shares of our Class A common stock (the “August 2021 Standard Warrants” and, together with the August 2021 Pre-Funded Warrants, the “August 2021 Warrants”), in a registered direct offering (the “August 2021 Offering”). The shares of Class A common stock and August 2021 Warrants were sold in Units (the “August 2021 Units”), with each unit consisting of one share of Class A common stock or an August 2021 Pre-Funded Warrant and an August 2021 Standard Warrant to purchase 0.6 of a share of our Class A common stock. The Units were offered pursuant to our existing shelf registration statement on Form S-3. The August 2021 Standard Warrants were immediately exercisable at an exercise price equal to $71.00 per share of Class A common stock. The August 2021 Standard Warrants are exercisable for five years from the date of issuance. Each August 2021 Pre-Funded Warrant was exercisable with no expiration date for one Share of Class A common stock at an exercise price of $0.20. The August 2021 Offering generated gross proceeds of approximately $31.9 million and net proceeds to the Company of approximately $29.9 million. All August 2021 Pre-Funded Warrants were exercised in August and September 2021, based upon which we issued an additional 296,329 shares of our Class A common stock, for net proceeds of approximately $0.1 million.

June 2022 Offering

exercisable six months from the date of issuance at an exercise price equal to $5.00 per share of Class A common stock for a period of five years. Each June 2022 Pre-Funded Warrant was exercisable six months from the date of issuance (as modified by the June 2022 Pre-Funded Warrant Waiver discussed below) with no expiration date for one share of Class A common stock at an exercise price of $0.002. The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million.

On July 27, 2022, pursuant to Section 9 of the June 2022 Pre-Funded Warrants, we waived the Initial Exercise Date (as defined in the June 2022 Pre-Funded Warrants and permitted the June 2022 Pre-Funded Warrants to be exercisable immediately to reflect the businss understanding between us and the investors in the June 2022 Offering with respect to the exerciseabilty of the June 2022 Pre-Funded Warrants (the "June 2022 Pre-Funded Warrant Waiver").

All June 2022 Pre-Funded Warrants were exercised in July 2022, based upon which we issued an additional 495,000 shares of our Class A common stock, for de minimis net proceeds.

October 2022 Offering

On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, 1,377,780 October 2022 Pre-Funded Warrants and 16,666,670 October 2022 Standard Warrants. The October 2022 Units each consisted of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 Units were offered pursuant to the S-1 Registration Statement. The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. For more information regarding the October 2022 Offering, please see "Note 13 - Subsequent Events."

All October 2022 Pre-Funded Warrants were exercised in November 2022, based upon which we issued an additional 1,377,780 shares of our Class A common stock, for de minimis net proceeds.

Class C Common Stock Conversion

On August 31, 2021, we completed our merger with KushCo. Pursuant to the Merger Agreement, immediately prior to the consummation of the Mergers, holders of Class C common stock, $0.0001 par value per share, received one-third of one share of Class B common stock, for each share of Class C common stock held, and Greenlane adopted the A&R Charter which eliminated Class C common stock as a class of Greenlane’s capital stock.

Net Loss Per Share

Basic net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive instruments.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of our Class A common stock is as follows (in thousands, except per share amounts):


	Three months ended September 30,				Nine months ended September 30,
(in thousands, except per share data)	2022		2021		2022		2021
Numerator:
Net loss	$	(79,215)	$	(28,715)	$	(112,445)	$	(42,269)
Less: Net loss attributable to non-controlling interests	(4,106)		(12,434)		(9,880)		(18,689)
Net loss attributable to Class A common stockholders	$	(75,109)	$	(16,281)	$	(102,565)	$	(23,580)
Denominator:
Weighted average shares of Class A common stock outstanding*	6,574		1,987		5,694		1,203
Net loss per share of Class A common stock - basic and diluted*	$	(11.43)	$	(8.19)	$	(18.01)	$	(19.60)

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

The June 2022 Pre-Funded Warrants were included in the weighted-average in the computation of basic net loss per share of Class A common stock for the three and nine months ended September 30, 2022 and 2021, respectively, beginning with their issuance date, as their stated exercise price of $0.002 was non-substantive and their exercise was virtually assured.

For the three and nine months ended September 30, 2022 and 2021, respectively, shares of Class B common stock, shares of Class C common stock and stock options and warrants to purchase Class A common stock were excluded from the weighted-average in the computation of diluted net loss per share of Class A common stock because the effect would have been anti-dilutive.

Shares of our Class B common stock and Class C common stock do not share in our earnings or losses and are therefore not participating securities. As such, separate calculations of basic and diluted net loss per share for each of our Class B common stock and Class C common stock under the two-class method have not been presented.

NOTE 10. COMPENSATION PLANS

Amended and Restated 2019 Equity Incentive Plan

In April 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”). Excluding the effect of the one-for-20 Reverse Stock Split, we previously registered 5,000,000 shares of Class A common stock that are or may become issuable under the 2019 Plan as stock options and other equity-based awards to employees, directors and executive officers. In August 2021, we adopted, and our shareholders approved, the Amended and Restated 2019 Equity Incentive Plan (the "Amended 2019 Plan"), which amends and restates the 2019 Plan in its entirety. Excluding the effect of the one-for-20 Reverse Stock Split, the Amended 2019 Plan, among other things, increases the number of shares of Class A common stock available for issuance under the 2019 Plan by 2,860,367.

At our 2022 Annual Meeting of Stockholders on August 4, 2022, stockholders approved the Second Amended and Restated 2019 Equity Incentive Plan (the "Second Amended 2019 Plan") which, among other things, increased the number of shares of Class A common stock authorized for issuance under the Amended 2019 Plan by 785,000 shares.

The Second Amended 2019 Plan provides eligible participants with compensation opportunities in the form of cash and equity incentive awards. The Second Amended 2019 Plan is designed to enhance our ability to attract, retain and motivate our employees, directors, and executive officers, and incentivizes them to increase our long-term growth and equity value in alignment with the interests of our stockholders.

KushCo Equity Plan

On August 31, 2021, we completed our merger with KushCo pursuant to the Merger Agreement dated as of March, 31, 2021. In connection with the completion of our merger with KushCo, we assumed the sponsorship of the KushCo Equity Plan. We do not intend to make future grants under the KushCo Equity Plan.

Rule 10b5-1 Trading Plans

Section 16 officer Adam Schoenfeld had an equity trading plan in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act, which was cancelled as of May 20, 2022. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of our Class A common stock, including shares acquired under our equity plans.

Equity-Based Compensation Expense

Equity-based compensation expense is included within "salaries, benefits and payroll taxes" in our condensed consolidated statements of operations and comprehensive loss. We recognized equity-based compensation expense as follows:


	For the three months ended September 30,				For the nine months ended September 30,
(in thousands)	2022		2021		2022		2021
Stock options - Class A common stock	$	82	$	2,672	$	1,017	$	3,267
Restricted shares - Class A common stock	105		752		463		996
Restricted stock units (RSUs) - Class A common stock	—		11		11		50
Common units of the Operating Company	—		376		—		449
Total equity-based compensation expense	$	187	$	3,811	$	1,491	$	4,762

Total remaining unrecognized compensation expense as of September 30, 2022 was as follows:


	Remaining Unrecognized Compensation Expense September 30, 2022		Weighted Average Period over which Remaining Unrecognized Compensation Expense is Expected to be Recognized
	(in thousands)		(in years)
Stock options - Class A common stock	$	389	1.7
Restricted shares - Class A common stock	366		1.5

Total remaining unrecognized compensation expense	$	755

NOTE 11. INCOME TAXES

As a result of the IPO and the related transactions completed in April 2019, we own a portion of the Common Units of the Operating Company, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, the Operating Company is generally not subject to U.S. federal and certain state and local income taxes, however, certain states in which the Operating Company does business impose state composite and/or withholding income taxes. Any taxable income or loss generated by the Operating Company is passed through to and included in the taxable income or loss of its members, including Greenlane, on a pro-rata basis, in accordance with the terms of the Operating Agreement. The Operating Company is also subject to taxes in foreign jurisdictions. We are a corporation subject to U.S. federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020, made tax law changes to provide financial relief to companies as a result of the business impacts of COVID-19. Key income tax provisions of the CARES Act include changes in net operating loss carryback and carryforward rules, acceleration of alternative minimum tax credit recovery, increase in the net interest expense deduction limit and charitable contribution limit, and immediate write-off of qualified improvement property. The changes are not expected to have a significant impact on us. The Consolidation Appropriations Act of 2021, enacted on December 27, 2020, extended and enhanced COVID relief provisions of the CARES Act. The Company has evaluated the impact of the Consolidated Appropriation Act and determined that its impact is not material to the Company’s financial statements.

As of September 30, 2022 and December 31, 2021, management performed an assessment of the realizability of our deferred tax assets based upon which management determined that it is not more likely than not that the results of operations will generate sufficient taxable income to realize portions of the net operating loss benefits. Consequently, we established a full valuation allowance against our deferred tax assets, and reflected a carrying balance of $0 as of September 30, 2022 and December 31, 2021, respectively. In the event that management determines that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance will be made, which would reduce the provision for income taxes. The provision for and benefit from income taxes for the three and nine months ended September 30, 2022 and 2021, respectively, relates to taxes in foreign jurisdictions, including Canada and the Netherlands.

For the three and nine months ended September 30, 2022 and 2021, respectively, the effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to the Operating Company's pass-through structure for U.S. income tax purposes, the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the valuation allowance against the deferred tax asset.

Excerpt for the Canadian subsidiary, we do not record U.S. income taxes on the undistributed earnings of our foreign subsidiaries, based upon our intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the United States. In the event we are required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences.

Uncertain Tax Positions

For the three and nine months ended September 30, 2022 and 2021, respectively, we did not have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period. No interest or penalties have been recorded as a result of tax uncertainties. The Company is subject to audit examination for federal and state purposes for the years 2018 – 2020.

Tax Receivable Agreement (TRA)

We entered into the TRA with the Operating Company and each of the members (other than Greenlane Holdings, Inc.) that provides for the payment by the Operating Company to the members of 85% of the amount of tax benefits, if any, that we may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis resulting from any future redemptions of Common Units as described in “Note 1—Business Operations and Organization” and (ii) certain other tax benefits attributable to payments made under the TRA.

The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Operating Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in the Operating Company. The rights of each noncontrolling interest holder under the TRA are assignable to transferees of its interest in the Operating Company. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Operating Company generates each year and the applicable tax rate.

As noted above, we evaluated the realizability of the deferred tax assets resulting from the IPO and the related transactions completed in April 2019 and established a full valuation allowance against those benefits. As a result, we determined that the amount or timing of payments to noncontrolling interest holders under the TRA are no longer probable or reasonably estimable. Based on this assessment, our TRA liability was $0 as of September 30, 2022 and December 31, 2021.

If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, we will record a liability related to the TRA, which would be recognized as expense within our condensed consolidated statements of operations and comprehensive (loss) income.

During the three and nine months ended September 30, 2022 and 2021, respectively, we did not make any payments, inclusive of interest, to members of the Operating Company pursuant to the TRA.

NOTE 12. SEGMENT REPORTING

We define our segments as those operations whose results are regularly reviewed by our CODM to analyze performance and allocate resources. Therefore, segment information is prepared on the same basis that management reviews financial information for operational decision-making purposes. Our CODM is our CEO.

Following the completion of the KushCo merger in late August 2021, we reassessed our operating segments based on our new organizational structure. Based on this assessment, we determined we had the following two operating segments as of September 30, 2022 and December 31, 2021, which are the same as our reportable segments: (1) Consumer Goods, which largely comprises Greenlane's legacy operations across the United States, Canada, and Europe, and (2) Industrial Goods, which largely comprises KushCo's legacy operations across the United States and Canada. These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021. The segment disclosures below have been retrospectively restated to reflect the change in segments.

The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary Greenlane Brands, including Eyce, DaVinci, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like PAX, Storz and Bickel, Grenco Science, VIBES and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin Greenlane Brands.

The Industrial Goods segment focuses on serving the premier MSOs, operators, and retailers through our wholesale operations by providing ancillary products essential to their growth, such as customizable packaging and supply products and vaporization solutions offering which includes CCELL branded products.

Our CODM allocates resources to and assesses the performance of our two operating segments based on the operating segments' net sales and gross profit. The following table sets forth information by reportable segment for the three and nine months ended September 30, 2022 and 2021, respectively. There were no material intersegment sales during the three and nine months ended September 30, 2022, and 2021, respectively.


	For the three months ended September 30, 2022						For the three months ended September 30, 2021
(in thousands)	Consumer Goods		Industrial Goods		Total		Consumer Goods		Industrial Goods		Total
Net sales	$	8,565	$	20,115	$	28,680	$	24,724	$	16,590	$	41,314
Cost of sales	7,937		15,774		23,711		23,213		16,614		39,827
Gross profit	$	628	$	4,341	$	4,969	$	1,511	$	(24)	$	1,487


	For the nine months ended September 30, 2022						For the nine months ended September 30, 2021
(in thousands)	Consumer Goods		Industrial Goods		Total		Consumer Goods		Industrial Goods		Total
Net sales	$	41,617	$	73,513	$	115,130	$	85,232	$	24,806	$	110,038
Cost of sales	35,104		60,990		96,094		68,766		22,177		90,943
Gross profit	$	6,513	$	12,523	$	19,036	$	16,466	$	2,629	$	19,095

The following table sets forth specific asset categories which are reviewed by our CODM in the evaluation of operating segments:


	As of September 30, 2022						As of December 31, 2021












(in thousands)	Consumer Goods		Industrial Goods		Total		Consumer Goods		Industrial Goods		Total
Accounts receivable, net	$	5,155	$	6,650	$	11,805	$	3,746	$	10,944	$	14,690
Inventories, net	$	21,568	$	26,377	$	47,945	$	32,142	$	34,840	$	66,982
Vendor deposits	$	6,897	$	2,270	$	9,167	$	9,675	$	8,800	$	18,475

NOTE 13. SUBSEQUENT EVENTS

Chief Executive Officer Transition

On October 7, 2022, we announced that Nicholas Kovacevich, our Chief Executive Officer, will step down as Chief Executive Officer on December 31, 2022 and transition into a new role within the Company as Chief Corporate Development Officer effective January 1, 2023 (the “Transition Date”).

Board Refreshment

In addition to the Chief Executive Officer transition announced on October 7, 2022, we also announced that we are exploring changes to the composition of the Board. The Nominating and Corporate Governance Committee of the Board is conducting an ongoing search with an emphasis on candidates identified as providing specific skill sets in areas such as consumer packaged goods, technology and innovation as the we pursue the previously disclosed changes to our business model.

Entry into Amended and Restated Employment Agreement with Nicholas Kovacevich

On October 6, 2022, in connection with the Chief Executive Officer transition described above, we entered into an amended and restated employment agreement (the “Amended Employment Agreement”) with Mr. Kovacevich. In connection with his entry into the Amended Employment Agreement, Mr. Kovacevich’s prior employment agreement with us was terminated. Additional information about the Amended Employment Agreement can be found in our Current Report on Form 8-K, filed with the SEC on October 7, 2022.

Vendor Payment Plan

On October 13, 2022, we entered into the Settlement Agreement with the Vendor for the repayment of the Remaining Liabilities due to the Vendor relating to previously purchased inventory. As previously disclosed and in connection with the our ongoing discussions with the Vendor, on July 18, 2022, we paid $1.0 million of the approximately $6.0 million balance due to the Vendor in cash and during the period of July 26, 2022 through July 31, 2022, returned approximately $1.1 million in inventory to the Vendor, which was accepted by the Vendor and was credited against the remaining outstanding balance owed by us to the Vendor. The Settlement Agreement provides for a payment plan pursuant to which the we have agreed to repay the Remaining Liabilities in weekly installments commencing on October 14, 2022. Pursuant to the terms of the Settlement Agreement, the Remaining Liabilities will be repaid in full on December 9, 2022.

High Tide and XS Financial Sales

On October 24, 2022, Warehouse Goods sold 38,839 shares of High Tide common stock for total consideration of approximately $0.05 million.

On November 3, 2022, Merger Sub Gotham 2, LLC, our wholly owned subsidiary, sold its interest in XS Financial to certain purchasers for total consideration of approximately $0.65 million, minus certain fees.

October 2022 Offering

On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, 1,377,780 October 2022 Pre-Funded Warrants and 16,666,670 October 2022 Standard Warrants. The October 2022 Units each consisted of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 Units were offered pursuant to the S-1 Registration Statement. The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million.

All October 2022 Pre-Funded Warrants were exercised in November 2022, based upon which we issued an additional 1,377,780 shares of our Class A common stock, for de minimis net proceeds.

Katella Lease Termination

On November 3, 2022, we also entered into that certain Lease Termination Agreement, dated as of October 31, 2022 solely for reference purposes (the "Lease Termination Agreement"), by and between us and Warland Investments Company (the "Landlord"), which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California (Collectively, the "Lease Termination"). Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.46 million as an early termination fee in consideration for the Landlord's agreement to terminate all of our remaining obligations under the Cypress lease. We expect the Lease Termination to result in approximately $1.7 million in savings, although we can provide no assurances as to the total amount of savings realized from the Lease Termination.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of Greenlane Holdings, Inc. and its consolidated subsidiaries (“Greenlane” and, collectively with the Operating Company and its consolidated subsidiaries, the “Company”, "we", "us" and "our") for the quarterly period ended September 30, 2022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes of Greenlane Holdings, Inc. for the year ended December 31, 2021, which are included in our Annual Report on Form 10-K.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could” and similar expressions. Examples of forward-looking statements include, without limitation:

•the impacts of the novel coronavirus ("COVID-19") pandemic and measures intended to prevent or mitigate its spread, and our ability to accurately assess and predict such impacts on our results of operations, financial condition, acquisition and disposition activities, and growth opportunities;

•statements regarding our growth and other strategies, results of operations or liquidity;

•statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance;

•statements regarding our industry;

•statements of management’s goals and objectives;

•statements regarding laws, regulations, and policies relevant to our business;

•projections of revenue, earnings, capital structure and other financial items;

•assumptions underlying statements regarding us or our business; and

•other similar expressions concerning matters that are not historical facts.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for

the fiscal year ended December 31, 2021 (the "2021 Annual Report") and in other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").

Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks include, but are not limited to, those listed below and those discussed in greater detail in Part I, Item 1A of the 2021 Annual Report under the heading “Risk Factors."

•our strategy, outlook and growth prospects;

•general economic trends and trends in the industry and markets in which we operate;

•our limited liquidity and our ability to successfully execute our strategic initiatives to improve our liquidity position;

•public heath crises, including the COVID-19 pandemic;

•our dependence on, and our ability to establish and maintain business relationships with, third-party suppliers and service suppliers;

•our ability to access capital;

•the competitive environment in which we operate;

•our vulnerability to third-party transportation risks;

•the impact of governmental laws and regulations and the outcomes of regulatory or agency proceedings;

•our ability to accurately estimate demand for our products and maintain appropriate levels of inventory;

•our ability to maintain or improve our operating margins and meet sales expectations;

•our ability to adapt to changes in consumer spending and general economic conditions, including the current inflationary environment;

•our ability to use or license certain trademarks;

•our ability to maintain consumer brand recognition and loyalty of our products;

•our and our customers’ ability to establish or maintain banking relationships;

•fluctuations in U.S. federal, state, local and foreign tax obligation and changes in tariffs;

•our ability to address product defects;

•our exposure to potential various claims, lawsuits and administrative proceedings;

•contamination of, or damage to, our products;

•any unfavorable scientific studies on the long-term health risks of vaporizers, electronic cigarettes, or cannabis or hemp-derived products, including CBD;

•failure of our information technology systems to support our current and growing business;

•our ability to prevent and recover from Internet security breaches;

•our ability to generate adequate cash from our existing business to support our growth;

•our ability to raise capital on favorable terms, or at all, to support the continued growth of the business;

•our ability to protect our intellectual property rights;

•our dependence on continued market acceptance of our products by consumers;

•our sensitivity to global economic conditions and international trade issues;

•our ability to comply with certain environmental, health and safety regulations;

•our ability to successfully identify and complete strategic acquisitions;

•natural disasters, adverse weather conditions, operating hazards, environmental incidents and labor disputes;

•increased costs as a result of being a public company; and

•our failure to maintain adequate internal controls over financial reporting.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.

Overview

Founded in 2005, Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, child-resistant packaging, vape solutions, and lifestyle products. In August 2021, we completed our transformational merger with KushCo, creating the leading ancillary cannabis company and house of brands. The combined company serves a diverse and expansive customer base with more than 8,500 retail locations, which includes many of the leading multi-state-operators and licensed producers, the top smoke shops in the United States, and millions of consumers globally. In addition to enhancing our financial size and scale, along with creating an optimized platform with significant potential revenue and cost saving synergies, the merger strengthened our best-in-class proprietary owned brands and exclusive third-party brand offerings.

We have been developing a world-class portfolio of our own proprietary brands (the "Greenlane Brands") that we believe will, over time, deliver higher margins and create long-term value for our customers and shareholders. Our Greenlane Brands are comprised of child-resistant packaging innovator Pollen Gear; the Marley Natural accessory line; the K. Haring Glass Collection accessory line; Aerospaced grinders; Cookies lifestyle line; and Higher Standards, which is both an upscale product line and an innovative retail experience with a flagship store in New York City’s famed Chelsea Market. During 2021, we have taken significant strides to grow our brand portfolio including with the March acquisition of substantially all of the assets of Eyce LLC and more recently, the November acquisition of substantially all of the assets of Organicix LLC dba DaVinci Tech. We also completed development of our newest product line, Groove, an expansive collection of reliable ancillary cannabis products officially launched in October of this year. At a more affordable price point, we are excited to attract a broader customer range with options for consumers of all budgets. Furthermore, as a pioneer in the ancillary cannabis space, Greenlane is the partner of choice for many of the industry's leading MSOs, LPs, and brands, including Storz & Bickel, Firefly, Santa Cruz Shredder, Cookies, and CCELL.

We merchandise vaporizers, packaging, and other products in the United States, Canada, and Europe and we distribute to retailers through wholesale operations and to consumers through e-commerce activities and our retail stores. We operate distribution centers in the United States, Canada, and Europe. With the completion of the distribution center consolidation and the merger with KushCo, we have established a lean and scalable distribution network that leverages a mix of leased warehoused spaces in California and Massachusetts along with third-party logistics ("3PL") locations in the U.S., Canada, and Europe.

Many of our products are sourced from suppliers who may use their own third-party manufacturers, and our product costs and gross margins may be impacted by the product mix we sell in any given period. Furthermore, legacy Greenlane and legacy KushCo margins are significantly different, due to their respective customer bases, product mix and types of transactions. Legacy KushCo revenue is comprised of a stable customer base of wholesale and business to business customers, resulting in a lower-volume of transactions with a higher average transaction price and lower margin sales. Conversely, legacy Greenlane sales are comprised of business to business, retail and e-commerce sales that consist of a higher volume of transactions with lower average prices and higher margins. Gross margin, or gross profit as a percentage of net sales, has been and will continue to be affected by a variety of factors, including the average mark-up over the cost of our products; the mix of products sold; purchasing efficiencies; the level of sales for certain third-party brands, which carry contractual profit sharing obligations; and the potential impact on freight costs arising from passing of the Prevent All Cigarette Trafficking Act (the “PACT Act”).

USPS PACT Act Exemption

On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and had their supply chains disrupted by PACT Act compliance.

On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls, processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers.

Reverse Stock Split

On August 4, 2022, we filed the Certificate of Amendment, which effected the Reverse Stock Split of our Common Stock at 5:01 PM Eastern Time on August 9, 2022. As a result of the Reverse Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the Reverse Split.

The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Split, as required by the terms of each security. The number of shares available to be awarded under the Equity Plan have also been appropriately adjusted.

2022 Plan

On March 10, 2022, we announced our strategic plan (the “2022 Plan”) to reduce our cost structure, increase liquidity and accelerate our path to profitability. The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of our headquarters building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products and securing an asset-based loan that will support our working capital needs (with respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”).

On June 22, 2022, we provided an update on the Liquidity Initiatives, which our management believes can generate more than $30.0 million of liquidity on a non-dilutive basis by the end of 2022 if all measures are successful. On July 19, 2022, Warehouse Goods entered into that certain Membership Interest Purchase Agreement and supporting documents to sell our 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash. Additionally, on August 9, 2022, we entered into an asset-based loan pursuant to that certain Loan and Security Agreement, dated as of August 8, 2022 (the “Loan Agreement”), by and among the Company, certain subsidiaries of the Company as guarantors, the parties thereto from time to time as lenders (the “Lenders”), and WhiteHawk Capital Partners LP, as the agent for the Lenders. As described in the Loan Agreement, the Lenders agreed to make available to us a term loan of up to $15.0 million on the terms and conditions set forth therein and the other Financing Agreements (as defined therein). Subsequently, on August 16, 2022, 1095 Broken Sound Pwky entered into a Purchase and Sale Agreement with a third-party whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including our headquarters building in Boca Raton, Florida for total consideration of $9.95 million, and on September 22, 2022 we closed on the sale. We expect to remain in our current headquarters space at 1095 Broken Sound Parkway, Suite 300 in Boca Raton, Florida through the end of November 2022, at which point we will transition our headquarters to Suite 100.

Finally, we are working to sell our excess & obsolete (“E&O”) inventory of lower-margin, non-strategic products, along with reducing our overall level of inventory on hand. In May 2022, we commenced our official E&O sales program internally and have since sold more than $2.7 million of previously reserved E&O inventory. Our management anticipates that the proceeds from these E&O sales, combined with a general sell-down of other non-core third-party brand inventory, will generate more than $10.0 million in liquidity.

Management believes that the 2022 Plan will significantly reduce costs, help accelerate the Company's path to profitability, support the growth of the business in a non-dilutive manner, and allow the Company to reinvest capital into its highest margin and highest growth potential product lines, such as its Greenlane Brands.

Notwithstanding the 2022 Plan, we were required to obtain additional capital through the sale of common stock and warrants in a public offering that closed in October 2022. See Note 9 — October 2022 Offering. This offering was completed in order to meet short term funding needs, and we are still seeking to execute our 2022 Plan and other liquidity initiatives.

Discontinuation of Nicotine Sales and Increased Focus on Greenlane Brands

Over the course of 2021, we reduced our reliance on lower-margin third-party nicotine brands and increased our focus on our Greenlane Brands, as part of our strategy to scale our portfolio of proprietary brands to build the leading house of brands in the ancillary cannabis industry. As evidence of this, sales from nicotine products decreased to $0 of total net sales for the nine months ended September 30, 2022 from $0.1 million, or 0.3% of total net sales for the same period in 2021.

COVID-19

In December 2019, a novel strain of coronavirus known as COVID-19 was reported in Wuhan, China. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. Since the outbreak of COVID-19, we have closely monitored developments and operated with the health and safety of our employees as the Company's top priority.

Although the impact of the COVID-19 pandemic has not had a significant adverse impact on our operations, we cannot reasonably estimate the length or severity of this pandemic on the macroeconomic environment which we operate in. Accordingly, the extent to which the COVID-19 pandemic will impact our financial condition or results of operations will depend on future developments, such as the duration and intensity of the pandemic, the effectiveness of COVID-19 vaccines and booster shots, and the overall impact on our customers, employees, vendors, and operations.

Results of Operations

The following table presents operating results for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,												Nine Months Ended September 30,
					% of Net sales				Change								% of Net sales				Change
	2022		2021		2022		2021		$		%		2022		2021		2022		2021		$		%
Net sales	28,680		41,314		100.0	%	100.0	%	$	(12,634)	(30.6)	%	115,130		110,038		100.0	%	100.0	%	$	5,092	4.6	%
Cost of sales	23,711		39,827		82.7	%	96.4	%	(16,116)		(40.5)	%	96,094		90,943		83.5	%	82.6	%	5,151		5.7	%
Gross profit	4,969		1,487		17.3	%	3.6	%	3,482		234.2	%	19,036		19,095		16.5	%	17.4	%	(59)		(0.3)	%

Operating expenses:
Salaries, benefits and payroll taxes	7,000		11,192		24.4	%	27.1	%	(4,192)		(37.5)	%	25,897		23,158		22.5	%	21.0	%	2,739		11.8	%
General and administrative	8,547		16,795		29.8	%	40.7	%	(8,248)		(49.1)	%	30,850		34,774		26.8	%	31.6	%	(3,924)		(11.3)	%
Goodwill and indefinite-lived intangibles impairment charge	66,760		—		232.8	%	—	%	66,760				66,760		—		58.0	%	—	%	66,760		—	%
Depreciation and amortization	2,124		1,199		7.4	%	2.9	%	925		77.1	%	6,876		2,385		6.0	%	2.2	%	4,491		188.3	%
Total operating expenses	84,431		29,186		294.4	%	70.7	%	55,245		189.3	%	130,383		60,317		113.3	%	54.8	%	70,066		116.2	%
Loss from operations	(79,462)		(27,699)		(277.1)	%	(67.0)	%	(51,763)		186.9	%	(111,347)		(41,222)		(96.8)	%	(37.5)	%	(70,125)		170.1	%

Other income (expense), net:
Interest expense	(926)		(119)		(3.2)	%	(0.3)	%	(807)		678.2	%	(1,598)		(368)		(1.4)	%	(0.3)	%	(1,230)		334.2	%
Other income (expense), net	1,173		(894)		4.1	%	(2.2)	%	2,067		(231.2)	%	562		(690)		0.5	%	(0.6)	%	1,252		(181.4)	%
Total other expense, net	247		(1,013)		0.9	%	(2.5)	%	1,260		*		(1,036)		(1,058)		(0.9)	%	(1.0)	%	22		*
Loss before income taxes	(79,215)		(28,712)		(276.2)	%	(69.6)	%	(50,503)		175.9	%	(112,383)		(42,280)		(97.7)	%	(38.5)	%	(70,103)		165.8	%
Provision for (benefit from) income taxes	—		3		—	%	—	%	(3)		(100.0)	%	62		(11)		0.1	%	—	%	73		(663.6)	%
Net loss	(79,215)		(28,715)		(276.2)	%	(69.6)	%	(50,500)		175.9	%	(112,445)		(42,269)		(97.8)	%	(38.5)	%	(70,176)		166.0	%
Net loss attributable to non-controlling interest	(4,106)		(12,434)		(14.3)	%	(30.1)	%	8,328		(67.0)	%	(9,880)		(18,689)		(34.4)	%	(17.0)	%	8,809		(47.1)	%
Net loss attributable to Greenlane Holdings, Inc.	$	(75,109)	$	(16,281)	(261.9)	%	(39.4)	%	$	(58,828)	361.3	%	$	(102,565)	$	(23,580)	(63.4)	%	(21.4)	%	$	(78,985)	335.0	%

*Not meaningful

Consolidated Results of Operations

Net Sales

For the three months ended September 30, 2022, net sales were approximately $28.7 million, compared to approximately $41.3 million for the same period in 2021, representing a decrease of $12.6 million, or 30.6%. The decrease was partially offset by the merger with KushCo in August 2021, which contributed $20.1 million in net sales in 2022 compared to $12.6 million for prior year, which only included September 2021 activity. Excluding KushCo's post-merger sales, net sales decreased 70.2% to $8.6 million for the three months ended September 30, 2022 compared to $28.7 million for the same period in 2021. Third-party consumer brand sales decreased $14.3 million compared to the same period in 2021 due to our strategy to focus on proprietary brands and business strategy to move away from lower margin third-party consumer brand sales. Sales of Greenlane Brands decreased $3.6 million, or 54.7%, to $3.0 million for the three months ended September 30, 2022 from $6.6 million for the same period in 2021, driven largely by a decrease in Vibes due to the sale of Greenlane's interest in the business, a decrease in Eyce and Aerospaced sales, partially offset by an increase in DaVinci.

For the nine months ended September 30, 2022, net sales were approximately $115.1 million, compared to approximately $110.0 million for the same period in 2021, representing an increase of $5.1 million or 4.6%. The increase was primarily due to the merger with KushCo in August 2021, which contributed $73.5 million in net sales in 2022 versus $12.6 million for prior year, which only included September 2021 activity.. Excluding KushCo's post-merger sales, net sales declined 51% to $41.6 million for the nine months ended September 30, 2022 compared to $85.2 million for the same period in 2021.

The decrease year over year is related to Industrial Pollen Gear $5.4 million and consumer goods sales for Greenlane Brands $7.6 million and third-party brands decreasing $27.9 million as a whole. The Company is in process of implementing a business strategy to move away from lower margin third-party consumer brand sales and focus on Greenlane Brands with higher margins. Revenue was negatively impacted by Greenlane's selling it's interest in the Vibes business during the current quarter. Sales were adversely impacted by ERP implementation efforts and the introduction of new CRM and B2B systems.

Cost of Sales and Gross Margin

For the three months ended September 30, 2022, cost of sales decreased by $16.1 million, or 40.5%, as compared to the same period in 2021. The decrease in cost of sales was attributable to a decrease in revenue.

Gross margin increased to 17.3% for the three months ended September 30, 2022, compared to gross margin of 3.6% for the same period in 2021. Excluding write-offs of damaged and obsolete inventory for the three months ended September 30, 2022 and 2021 of $1.0 million and $7.6 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the three months ended September 30, 2022, compared to 22.0% for the same period in 2021. The increase in margin is related to a 71.9% decline in third-party brand sales, which carry a lower margin profile.

For the nine months ended September 30, 2022 cost of sales increased by $5.2 million, or 5.7%, as compared to the same period in 2021. The increase is related to the increase in sales year over year of 4.6%.

Gross margin decreased to 16.5% for the nine months ended September 30, 2022, compared to gross margin of 17.4% for the same period in 2021. Excluding inventory write-offs of damaged and obsolete inventory for the nine months ended September 30, 2022 and 2021, respectively, of $7.8 million and $7.6 million respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the nine months ended September 30, 2022, compared to 22.0% for the same period in 2021. Excluding damaged and obsolete negative impact margins remained relatively flat year over year.

Salaries, Benefits and Payroll Taxes

Salaries, benefits and payroll taxes expenses decreased by approximately $4.2 million, or 37.5%, to $7.0 million for the three months ended September 30, 2022, compared to $11.2 million for the same period in 2021, primarily due to a decrease in stock compensation of $3.4 million related to the acceleration of vesting options due to the KushCo merger.

Salaries, benefits and payroll taxes expenses increased by approximately $2.7 million or 11.8% , to $25.9 million for the the nine months ended September 30, 2022, compared to $23.2 million for the same period in 2021, primarily due to an increase related to the KushCo merger, partially offset by a $2.7 million decrease in stock compensation.

As we continue to closely monitor the evolving business landscape, including the impacts of COVID-19 and the regulatory and macro environment on our customers, vendors, and overall business performance, we remain committed to right-sizing our organization and introducing digital solutions while delivering on our strategy to recruit, train, promote and retain the most talented and success-driven personnel in the industry.

General and Administrative Expenses

General and administrative expenses decreased by approximately $8.2 million, or 49.1%, for the three months ended September 30, 2022, compared to the same period in 2021. This decrease was primarily due to an decrease of approximately $5.0 million in marketing expense, $1.3 million in professional fees and $1.8 million in prepaid inventory write-off for the prior year. Also contributing to the decrease was the gain on the sale of the Vibes business interest $2.1 million, Boca Florida real estate sale $0.8M offset by an increase in bad debt expense of $0.8 million year over year and fixed asset sale loss of $0.7 million.

General and administrative expenses decreased by approximately $3.9 million or 11.3%, for the nine months ended September 30, 2022, compared to the same period in 2021. This decrease was primarily due to a $3.5 million reduction in professional fees related to the KushCo merger. Additionally, merchant fees decreased $1.3 million due to a decline in consumer revenue, insurance decreased $1.3 million due to a one-time D&O insurance payment related to the KushCo merger in the prior year, marketing expenses decreased $0.6 million, and restructuring expenses decreased $0.6 million. These declines were partially offset by a $2.2 million increase in bad debt, $1.9 million increase in facilities, and $0.8 million increase in outbound shipping driven by the KushCo merger. Also contributing to the decrease was the gain on the sale of the Vibes business interest of $2.1 million, and then Boca Raton, Florida real estate sale of $0.8M offset by a loss of $0.7 million related to a fixed asset sale.

Goodwill and Indefinite-Lived Intangibles Impairment Charge

We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the three months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021. This impairment charge was due to declining business and declining enterprise value.

We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the nine months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021. This impairment charge was due to declining business and declining enterprise value.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $0.9 million, or 77.1%, for the nine months ended September 30, 2022, compared to the same period in 2021. The increase is primarily related to the additional depreciation and amortization expense related to assets acquired in conjunction with the KushCo merger, the Eyce and DaVinci business acquisitions, and the ERP implementation.

Depreciation and amortization expense increased $4.5 million, or 188.3%, for the nine months ended September 30, 2022, compared to the same period in 2021. The increase is primarily related to the additional depreciation and amortization expense related to assets acquired in conjunction with the KushCo merger, the Eyce and DaVinci business acquisitions, and the ERP implementation.

Other Income (Expense), Net

Interest expense.

Interest expense increased approximately $0.8 million during the three months ended September 30, 2022. The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition.

Interest expense decreased approximately $1.2 million during the nine months ended September 30, 2022. The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition.

Other expense, net.

Other income (expense), net, expense increased by approximately $2.1 million million for the three months ended September 30, 2022, compared to the same period in 2021. The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition.

Other income (expense), net, expense increased by approximately $1.3 million for the nine months ended September 30, 2022, compared to the same period in 2021. The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition.

Provision for (Benefit from) Income Taxes

As a result of the IPO and the related transactions completed in April 2019 (described further in "Note 1—Business Operations and Organizations" of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q), we own a portion of the Common Units of the Operating Company, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, the Operating Company is generally not subject to U.S. federal and certain state and local income taxes, however, certain states in which the Operating Company does business impose state composite and/or withholding income taxes. Any taxable income or loss generated by the Operating Company is passed through to and included in the taxable income or loss of its members, including Greenlane, on a pro-rata basis, in accordance with the terms of the Operating Agreement. The Operating Company is also subject to taxes in foreign jurisdictions. We are a corporation subject to U.S. federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income.

Segment Operating Performance

comprises KushCo's legacy operations. These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021.

The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary brands, including Eyce, DaVinci, VIBES, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like PAX, Storz and Bickel, Grenco Science, and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands.

The Industrial Goods segment focuses on serving the premier MSOs and retailers through our wholesale operations by providing ancillary products essential to their growth, such as customizable packaging and supply products and vaporization solutions offering which includes CCELL branded products.


	Three Months Ended September 30,												Nine Months Ended September 30,
					% of Total Net sales				Change								% of Total Net sales				Change
	2022		2021		2022		2021		$		%		2022		2021		2022		2021		$		%
Net sales:
Consumer Goods	$	8,565	$	24,724	29.9	%	59.8	%	$	(16,159)	(65.4)	%	$	41,617	$	85,232	36.1	%	77.5	%	$	(43,615)	(51.2)	%
Industrial Goods	20,115		16,590		70.1	%	40.2	%	3,525		21.2	%	73,513		24,806		63.9	%	22.5	%	48,707		196.4	%
Total net sales	$	28,680	$	41,314									$	115,130	$	110,038

					% of Segment Net sales				Change								% of Segment Net sales				Change
Cost of sales:	2022		2021		2022		2021		$		%		2022		2021		2022		2021		$		%
Consumer Goods	$	7,937	$	23,213	92.7	%	93.9	%	$	(15,276)	(65.8)	%	$	35,104	$	68,766	84.4	%	80.7	%	$	(33,662)	(49.0)	%
Industrial Goods	15,774		16,614		78.4	%	100.1	%	(840)		(5.1)	%	60,990		22,177		83.0	%	89.4	%	38,813		175.0	%
Total cost of sales	$	23,711	$	39,827									$	96,094	$	90,943

Gross profit:
Consumer Goods	$	628	$	1,511	7.3	%	6.1	%	$	(883)	(58.4)	%	$	6,513	$	16,466	15.6	%	19.3	%	$	(9,953)	(60.4)	%
Industrial Goods	4,341		(24)		21.6	%	(0.1)	%	4,365		(18187.5)	%	12,523		2,629		17.0	%	10.6	%	9,894		376.3	%
Total gross profit	$	4,969	$	1,487									$	19,036	$	19,095

Consumer Goods

For the three months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $8.6 million compared to approximately $24.7 million for the same period in 2021, representing a decrease of $16.2 million or 65.4%. The year-over-year decrease represented a $5.6 million or 63.2% decrease in Greenlane Brands sales and a $14.3 million or 71.9% decrease in consumer third-party brand sales due to our strategy to focus on proprietary brands with higher margins. The company has also sold Greenlane's interest in the Vibes business impacting sales negatively.

For the nine months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $41.6 million compared to approximately $85.2 million for the same period in 2021, representing a decrease of $43.6 million or 51.2%. The year-over-year decrease is driven by a decrease in third-party and Greenlane brand sales. The company has also sold Greenlane's interest in the Vibes business impacting sales negatively.

For the three months ended September 30, 2022, cost of sales decreased by $15.3 million, or 65.8%, as compared to the same period in 2021. The decrease in cost of sales was primarily due to the $16.2 million aforementioned sales decrease of 65.4%.

For the nine months ended September 30, 2022, cost of sales decreased by $33.7 million or 49.0% , as compared to the same period in 2021. The decrease in cost of sales was primarily due to a $43.6 million or 51.2% decrease in sales compared to the same period in 2021.

Gross margin increased 1.2% to 7.3% for the three months ended September 30, 2022, compared to gross margin of approximately 6.1% for the same period in 2021. The low margins in both years are related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives. Excluding these D&O charges of $0.8 million, gross margin was approximately 17.0% for the three months ended September 30, 2022, compared to gross margin of approximately 23.5% for the same period in 2021 which incurred $4.3 million of D&O write-offs.

Gross margin decreased 3.7% to 15.6% for the nine months ended September 30, 2022, compared to gross margin of approximately 19.3% for the same period in 2021. The decrease is related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives. Excluding these D&O charges of $3.4 million, gross margin was approximately 23.7% for the nine months ended September 30, 2022, compared to gross margin of approximately 25.8% for the same period in 2021 which incurred $5.5 million of D&O write-offs.

Industrial Goods

For the three months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $20.1 million compared to approximately $16.6 million for the same period in 2021, representing an increase of $3.5 million or 21.2%. The increase is directly related to net sales resulting from our merger with KushCo in August 2021.

For the nine months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $73.5 million compared to approximately $24.8 million for the same period in 2021, representing an increase of $48.7 million or 196.4%. The increase is directly related to the net sales resulting from our merger with KushCo in August 2021.

For the three months ended September 30, 2022, cost of sales decreased by $0.8 million, or 5.1%, as compared to the same period in 2021, due to the increase in sales.

For the nine months ended September 30, 2022, cost of sales increased by $38.8 million or 175.0%, as compared to the same period in 2021, due to the increase in sales year-over-year.

Gross margin was approximately 21.6% for the three months ended September 30, 2022, compared to gross margin of approximately (0.1)% for the same period in 2021, representing a 15017.7% year-over-year increase. Excluding post-merger strategic product rationalization initiative charges of $0.2 million, gross margin was approximately 22.4% for the three months ended September 30, 2022, compared to gross margin of approximately 17.8% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million. The year over year increase in gross margin of approximately 4.6% is related to the sale of higher-margin KushCo related products.

Gross margin was approximately 17.0% million for the nine months ended September 30, 2022, compared to gross margin of approximately 10.6% for the same period in 2021, representing a 60.7% year-over-year increase. Excluding post-merger strategic product rationalization initiative charges of $4.7 million, gross margin was approximately 23.4% for the nine months ended September 30, 2022, compared to gross margin of approximately 22.6% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million. The year-over-year increase in gross margin of approximately 0.8% is related to the sale of higher-margin KushCo related products.

Net Sales by Geographic Regions


	Three Months Ended September 30,												Nine Months Ended September 30,
					% of Net sales				Change								% of Net sales				Change
	2022		2021		2022		2021		$		%		2022		2021		2022		2021		$		%
Net sales:
United States	$	25,801	$	37,501	90.0	%	90.8	%	$	(11,700)	(31.2)	%	$	106,407	$	96,862	92.4	%	88.0	%	$	9,545	9.9	%
Canada	1,543		982		5.4	%	2.4	%	561		57.1	%	4,273		4,955		3.7	%	4.5	%	(682)		(13.8)	%
Europe	1,336		2,831		4.7	%	6.8	%	(1,495)		(52.8)	%	4,464		8,221		3.9	%	7.5	%	(3,757)		(45.7)	%
Total net sales	$	28,680	$	41,314	100.1	%	100.0	%	$	(12,634)	(30.6)	%	$	115,144	$	110,038	100.0	%	100.0	%	$	5,106	4.6	%

United States

For the three months ended September 30, 2022, our United States net sales were approximately $25.8 million, compared to approximately $37.5 million for the same period in 2021, representing a decrease of $11.7 million, or 31.2%. The year-over-year decrease was primarily reduced by the impact of the KushCo merger, which contributed $20.1 million in total net sales. Excluding net sales contributed by KushCo, total net sales decreased by approximately $20.1 million, or 70.2%, to approximately $8.6 million for the three months ended September 30, 2022, compared to the same period in 2021. The year-

over-year decrease was principally due to a decrease in wholesale revenue of $10.0 million, and a decrease in consumer retail and marketplace revenue of $4.2 million.

For the nine months ended September 30, 2022, our United States net sales were approximately $106.4 million, compared to approximately $96.9 million for the same period in 2021, representing an increase of $9.5 million, or 9.9%. The year-over-year increase was primarily due to the merger with KushCo, which contributed $70.9 million in total net sales. Excluding net sales contributed by KushCo, total net sales decreased by approximately $37.5 million, or 106.6%, to approximately $35.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. The decrease was driven by a decrease in wholesale revenue and consumer marketplace and e-commerce business.

Canada

For the three months ended September 30, 2022, our Canadian net sales were approximately $1.5 million, compared to approximately $1.0 million for the same period in 2021, representing an increase of $0.6 million, or 57.1%. The year-over-year increase was primarily due to the merger with KushCo, which contributed in total net sales. This was partially offset by a $0.4 million decrease in consumer revenue.

For the nine months ended September 30, 2022, our Canadian net sales were approximately $4.3 million, compared to approximately $5.0 million for the same period in 2021, representing a decrease of $0.7 million, or 13.8%. The year-over-year decrease was primarily due to a decrease in wholesale revenue offset by incremental sales contributed by KushCo.

Europe

For the three months ended September 30, 2022, our European net sales were approximately $1.3 million, compared to approximately $2.8 million for the same period in 2021, representing a decrease of $1.5 million or 52.8%. This was primarily due to a $0.9 million, or 65.2%, decrease in our e-commerce sales.

For the nine months ended September 30, 2022, our European net sales were approximately $4.5 million, compared to approximately $8.2 million for the same period in 2021, representing a decrease of $3.8 million, or 45.7%. This was primarily due to a decrease in wholesale sales.

Liquidity and Capital Resources

Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds other equity issuances such as our June 2022 and August 2022 offerings. As of September 30, 2022, 2022, we had approximately $8.0 million of cash, of which $1.0 million was held in foreign bank accounts, and approximately $39.4 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $12.9 million of cash, of which $0.7 million was held in foreign bank accounts, and approximately $53.8 million of working capital as of December 31, 2021. The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls; however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal or other restrictions.

On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”), in a registered direct offering (the “June 2022 Offering”). The shares of Class A common stock and June 2022 Warrants were sold in Units (the “June 2022 Units”), with each unit consisting of one share of Class A common stock or a June 2022 Pre-Funded Warrant and a June 2022 Standard Warrant to purchase one share of our Class A common stock. The June 2022 Units were offered by the Company pursuant to the Shelf Registration Statement. Subject to certain ownership limitations, the June 2022 Standard Warrants are exercisable for five years from the six-month anniversary of issuance at an exercise price equal to $5.00 per share of Class A common stock. Each June 2022 Pre-Funded Warrant was exercisable for one share of Class A common stock at an exercise price of $0.002. The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 million. All June 2022 Pre-Funded Warrants were exercised in July 2022, based upon which we issued an additional 495,000 shares of our Class A common stock, for de minimis net proceeds.

On March 10, 2022, we announced the 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability. The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of our headquarters building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products and securing an asset-based loan that will support our working capital needs (with

respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”). Please see "Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Overview — 2022 Plan" for more information.

On July 19, 2022, we entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into the Loan Agreement whereby the Lenders agreed to make available to the Company a term loan of up to $15.0 million.

On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries closed on the purchase of a building for $10.0 million, which serves as our corporate headquarters. The purchase was financed through a real estate term note (the “Real Estate Note”) in the principal amount of $8.5 million, with one of the Operating Company’s wholly-owned subsidiaries as the borrower and Fifth Third Bank as the lender. Principal amounts plus any accrued interest at a rate of LIBOR plus 2.39% are due monthly. Our obligations under the Real Estate Note are secured by a mortgage on the property. On September 22, 2022 (the “Closing Date”), 1095 Broken Sound consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound and ASC Capital LLC (the “Purchaser”) whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our headquarters building to the Purchaser for total consideration of $9.95 million in cash (collectively, the “HQ Transaction”). On the Closing Date, the Company used the proceeds from the HQ Transaction to repay the remainder of the Real Estate Note in full. The remaining proceeds will be used for general corporate purposes.

On October 24, 2022, Warehouse Goods sold 38,839 shares of High Tide common stock for total consideration of approximately $0.05 million.

On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, 1,377,780 October 2022 Pre-Funded Warrants and 16,666,670 October 2022 Standard Warrants. Each October 2022 Unit consisted of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 Units were offered pursuant to the S-1 Registration Statement. The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. For more information regarding the October 2022 Offering, please see "Note 13 - Subsequent Events."

On November 3, 2022, Merger Sub Gotham 2 sold its interest in XS Financial to certain purchasers for total consideration of approximately $0.65 million, minus certain fees. On the same day, we also entered into the Lease Termination Agreement, which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California. Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.46 million as an early termination fee in consideration for the Landlord's agreement to terminate all of our remaining obligations under the Cypress lease. We expect the Lease Termination to result in approximately $1.7 million in savings, although we can provide no assurances as to the total amount of savings realized from the Lease Termination.

We have an effective shelf registration statement on Form S-3 (the "Shelf Registration Statement") and may opportunistically conduct securities offerings from time to time in order to meet our liquidity needs. The Shelf Registration Statement registers shares of our Class A common stock, preferred stock, $0.0001 par value per share (the "preferred stock"), depository shares representing our preferred stock, warrants to purchase shares of our Class A common stock, preferred stock or depository shares, and rights to purchase shares of our Class A common stock or preferred stock that may be issued by us in a maximum aggregate amount of up to $200 million. In August 2021, we filed a prospectus supplement and established an "at-the-market" equity offering program (the "ATM Program") that provides for the sale of shares of our Class A common stock having an aggregate offering price of up to $50 million, from time to time. Net proceeds from sales of our shares of Class A common stock under the ATM Program are expected to be used for working capital and general corporate purposes. However, we may be unable to access the capital markets because of current market volatility and the performance of our stock price.

On March 31, 2022, the date on which our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") was filed with the SEC, the Shelf Registration Statement became subject to the offering limits set forth in Instruction I.B.6 because our public float was less than $75 million. For so long as our public float is less than $75 million, the aggregate market value of securities sold by us under the Shelf Registration Statement (including our ATM Program) pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float. Since the launch of the ATM program in August 2021 and through September 30, 2022, we sold 972,624 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $12.7 million. In light of our low cash position, we have been forced to sell stock under our ATM program at prices that may not otherwise be attractive and are dilutive. We have offered $6.8 million in securities pursuant to Instruction I.B.6 in the twelve calendar months preceding the date of filing of this Quarterly Report on Form 10-Q. Following the completion of the June 2022 Offering we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the restrictions under Instruction I.B.6 to Form S-3, which will limit our liquidity options in the capital markets.

Our future liquidity needs may also include payments in respect of the redemption rights of the Common Units held by its members that may be exercised from time to time (should we elect to exchange such Common Units for a cash payment), payments under the TRA and state and federal taxes to the extent not sheltered by our tax assets, including those arising as a result of purchases, redemptions or exchanges of Common Units for Class A common stock. Although the actual timing and amount of any payments that may be made under the TRA will vary, the payments that we will be required to make to the members may be significant. Any payments made by us to the members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to the Operating Company and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA.

Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.

As of September 30, 2022, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Cash Flows

The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q:


	Nine Months Ended September 30,
(in thousands)	2022		2021
Net cash used in operating activities	$	(22,488)	$	(32,028)
Net cash provided by (used in) investing activities	12,500		(14,256)
Net cash provided by financing activities	7,535		28,871

Net Cash Used in Operating Activities

During the nine months ended September 30, 2022, net cash used in operating activities of approximately $22.5 million consisted of (i) net loss of $112.4 million, offset by non-cash adjustments to net loss of approximately $74.3 million, and (ii) a $15.7 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $9.9 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $25.6 million.

During the nine months ended September 30, 2021, net cash used in operating activities of approximately $32.0 million consisted of (i) net loss of $42.3 million, offset by non-cash adjustments to net loss of approximately $7.1 million, and (ii) $2.2 million cash used in working capital primarily driven by decreases in accounts payable and accrued expenses of approximately $13.7 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $11.5 million, which included the collection of an indemnification asset of approximately $0.9 million, and the reduction of our VAT receivable balance upon the collection of a refund from the Dutch tax authorities of approximately $4.1 million.

Net Cash Provided by (Used in) Investing Activities

During the nine months ended September 30, 2022, net cash provided by investing activities of approximately $12.5 million largely consisted of proceeds from the same of assets held for sale of $9.6 million and proceeds from the sales of our interests in VIBES of $4.6 million, offset by cash used for development costs for our new enterprise resource planning (ERP) system of $1.7 million.

During the nine months ended September 30, 2021, net cash used in investing activities of approximately $14.3 million consisted of (i) approximately $12.3 million of cash used for the acquisition of Eyce and KushCo, net of cash acquired, (ii) $2.3 million for capital expenditures, including development costs for our new enterprise resource planning system, and (iii) $0.3 million of cash for the purchase of intangible assets, offset by proceeds from the sale of assets held for sale of approximately $0.7 million.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2022, net cash provided by financing activities of approximately $7.5 million primarily consisted of cash proceeds of approximately $14.1 million from the issuance of Class A common stock through our ATM Program and the June 2022 Offering, offset primarily by approximately $2.8 million in payments on notes payable, finance lease obligations and other long-term liabilities, and approximately $0.9 million in payments of contingent consideration related to the Eyce LLC acquisition.

During the nine months ended September 30, 2021, net cash used in financing activities primarily consisted of approximately $0.2 million in payments on other long-term liabilities, notes payable and finance lease obligations, $0.2 million in member distributions, offset by $0.1 million of cash proceeds from the exercise of stock options.

Critical Accounting Policies and Estimates

See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2021. Also see "Note 2 - Summary of Significant Accounting Policies" within Part I, Item 1 of this Form 10-Q for a discussion of the voluntary accounting principle change made beginning with the quarterly period ended March 31, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

Management's Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2022, our disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting described in Item 9A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021, which have not yet been remediated as of September 30, 2022.

Material Weaknesses Remediation Plan and Status

As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021, we began implementing a remediation plan to address the material weaknesses identified in the prior year, and our management continues to be actively engaged in the remediation efforts. To remediate the identified material weaknesses, we are continuing to take the following remediation actions:

•implement enhancements to company-wide risk assessment processes and to process and control documentation;

•enhance the Company's review and sign-off procedures for IT implementations;

•implement additional review procedures designed to enhance the control owner’s execution of control activities, including entity level controls, through the implementation of improved documentation standards evidencing execution of these controls, oversight, and training;

•improve control activities and procedures associated with certain accounting areas, including proper segregation of duties and assigning personnel with the appropriate experience as preparers and reviewers over analyses relating to such accounting areas;

•educate and train control owners regarding internal control processes to mitigate identified risks and maintain adequate documentation to evidence the effective design and operation of such processes; and

•implement enhanced controls to monitor the effectiveness of the underlying business process controls that are dependent on the data and financial reports generated from the relevant information systems.

We are also continuing to evaluate additional controls and procedures that may be required to remediate the identified material weaknesses. We cannot provide assurances that the previously reported material weaknesses will be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

In 2020 we began a multi-year implementation of a new ERP system, which will replace our existing core financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance the flow of financial information, improve data management and provide timely information to our management team. We completed the implementation for certain subsidiaries during the first quarter of 2022, which included changes to our processes, procedures and internal controls over financial reporting during the first quarter of 2022. As the implementation of the new ERP system progresses for our other subsidiaries, we expect to continue to change certain processes and procedures which, in turn, are expected to result in changes to our internal control over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.

There were no other changes to our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see Note 7 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

As of September 30, 2022, there have been no material changes from the risk factors previously disclosed in response to “Part I – Item 1A. ‘Risk Factors’” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2022, we issued shares of Class A common stock in exchange for an equivalent number of shares of Class B common stock and Common Units of the Operating Company pursuant to the terms of our Amended and Restated Certificate of Incorporation and the Operating Company's Third Amended and Restated Operating Agreement, as follows:


	Date	Class A shares issued
*	July 19, 2022	799,902
	August 31, 2022	108,310
	September 30, 2022	2,875

*After giving effect to the one-for-20 Reverse Stock Split effective August 9, 2022.

These shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number						Description

4.1						Form of October 2022 Standard Warrant (Incorporated by reference to Exhibit 4.1 to Greenlane's Current Report on Form 8-K, filed on November 1 , 2022).
4.2						Form of October 2022 Pre-Funded Warrant (Incorporated by reference to Exhibit 4.2 to Greenlane’s Current Report on Form 8-K, filed November 1 , 2022).
10.1						Form of October 2022 Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed November 1 , 2022).
10.2						Placement Agency Agreement, dated October 27, 2022 (Incorporated by reference to Exhibit 10.2 to Greenlane's Current Report on Form 8-K, filed November 1 , 2022).
10.3*						Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound Pwky LLC and ASC Capital LLC
10.4*						Loan and Security Agreement, dated as of August 8, 2022, by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders
10.5†						Amended and Restated Employment Agreement Employment Agreement by and between Warehouse Goods LLC and Nicholas Kovacevich, dated as of October 6, 2022. (Incorporated by reference to Exhibit 10.1 to Greenlane's Current Report on Form 8-K, filed October 7, 2022).
10.6*						Form of Guaranty Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.4).
10.7*						Form of Pledge Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.4).
10.8*						Form of U.S. Intellectual Property Security Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.4).
10.9*						Form of Canadian Security Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.4).
10.10*						Form of Canadian Intellectual Property Security Agreement, dated as of August 8, 2022, by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.4).
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*						The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, were formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Stockholders’ Equity, and (iv) Condensed Consolidated Statements of Cash Flows. The instance document does not appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document.
104*						Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL

______________________________________________

* Filed herewith.

† Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GREENLANE HOLDINGS, INC.

Date: November 14, 2022	By:	/s/ Darshan Dahya
		Darshan Dahya Chief Accounting Officer (Principal Financial and Accounting Officer)