Greenlane Holdings, Inc. (NASDAQ: GNLN) reported financial results for the first quarter ending March 31, 2022 as revenue increased 37% to $46.5 million versus last year’s $34.0 million for the same quarter. However, it was a dramatic fall from the fourth quarter’s revenue of $56 million and it missed the Yahoo Finance average analyst estimate for sales of $51 million.
Net losses at Greenlane grew to $18 million from last year’s net loss of $7 million and the earnings per share were ($0.17). This also missed the estimates for earnings of ($0.07). The stock was falling over 5% in early trading to lately sell at 35 cents.
Greenlane reported that the year-over-year increase in net sales was primarily driven by the KushCo merger. Excluding KushCo’s post-merger sales, revenue declined 47% to $18.1 million, compared to $34.0 million for the same period in 2021. Third-party brand sales decreased 49% due to its strategy to focus on our proprietary, higher-margin Greenlane Brands. Greenlane Brand sales decreased 34% to $6.0 million, or 12.8% of total revenue, in the first quarter 2022 compared to $9.0 million, or 26.6% of total revenue in 2021. The decrease was mainly due to interruptions related to the ERP implementation.
“Building on a record and transformational 2021, we made meaningful progress executing on our strategic 2022 plan in Q1 2022, from reducing our corporate headcount to focusing more on our higher-margin Greenlane Brands,” said Nick Kovacevich, CEO of Greenlane. “Total revenue increased 37% to $46.5 million, driven primarily by the KushCo merger. If you exclude KushCo’s post-merger sales, revenue declined 47% year-over-year to $18.1 million, driven in large part by our strategic shift away from non-core third-party brands, sales of which decreased 49% from the same period in 2021. As part of our strategy to focus more on our higher-margin, proprietary Greenlane Brands, we expect a decline in total revenue from discontinuing some of these third-party brand relationships, but we believe the overall quality and margins of the revenue that we will generate going forward will be far more favorable and sustainable.
Costs Up, Sales Down
Greenlane reported that its cost of sales increased by $15.1 million, or 59%, as compared to the same period in 2021. The company attributed the increase to the impact of the KushCo merger of $26.2 million, offset by a decrease in revenue of 47% excluding the impact of the KushCo merger.
Salaries, benefits, and payroll taxes expenses increased by 58% to $10.1 million versus $6.4 million for the same period in 2021, primarily due to an increase related to the KushCo merger, an increase in severance of $0.6 million and an increase in stock compensation expense of $0.4 million. The increase was offset by salaries and payroll taxes decrease related to a reduction in force we completed in March 2022, which we expect to result in approximately $8.0 million in annualized cash compensation cost savings. This reduction in force is a part of its 2022 plan to reduce the cost structure, increase liquidity and accelerate our path to profitability.
Kovacevich added, “Sales of our Greenlane Brands was down 34% year-over-year to $6.0 million, largely due to our ERP system implementation, which caused interruptions in our ability to accept and fulfill customer orders. Although we expect to fully transition to this new ERP by the end of 2022, these interruptions materially impacted revenue for the first quarter, with some orders slipping into the second quarter. Growing our proprietary brands remains a key focus of ours, as it helps expand our strategic moat, margins, revenue, and profitability. In fact, we’re excited to have recently announced our partnership with Universal Distribution to distribute our Greenlane Brands in the promising Latin America market. Given that we are not subject to the same global trade restrictions as our plant-touching peers, we can ship our products worldwide in an asset-light manner, enabling us to scale faster and wider, and ultimately build our brands ahead of legalization in these markets.