Greenlane Holdings Inc: Cannabis Accessories Giant Looks Bullish on New Distribution Deal

Greenlane Holdings Stock Up 177% Since Hitting March Lows

Greenlane Holdings Inc (NASDAQ:GNLN) stock is up 177% since hitting March lows, and its outlook for 2021 looks bullish. The company also recently announced a new global distribution expansion for smoking accessories.

U.S. pot stocks have been experiencing a boost due to rising sales, which are expected to climb 40% in 2020 to over $15.0 billion and close in on $37.0 billion by 2024. (Source: “Exclusive: US Retail Marijuana Sales on Pace to Rise 40% in 2020, Near $37 billion by 2024,” Marijuana Business Daily, June 30, 2020.)

U.S. marijuana stocks could also experience a big jump in the days following the U.S. election if Joe Biden and Kamala Harris are elected and the Democrats take the Senate. Harris has said she would decriminalize the drug.

Even before Harris was picked as Biden’s running mate, she supported decriminalizing cannabis. She was the lead sponsor of the Marijuana Opportunity, Reinvestment and Expungement Act of 2019 (MORE Act), which sought to end the federal prohibition of marijuana.

GNLN Stock Overview

Greenlane Holdings Inc is already one of the biggest winners from cannabis becoming more legally accessible across the U.S. Decriminalizing pot at the federal level would make it an even bigger player.

Greenlane is one of the largest global sellers of premium cannabis products, cannabidiol (CBD), and liquid nicotine products. (Source: “Investor Meeting | September, 2020,” Greenlane Holdings Inc, last accessed November 2, 2020.)

The company has a national retail footprint with more than 11,000 partners, including licensed cannabis dispensaries, smoke shops, and vape shops. It has also struck numerous exclusive deals with dozens of industry leaders, including PAX Labs, Storz & Bickel, Grenco Science, Firefly, DaVinci, Select, Sherbinskis, Bloom Farms, and Mary’s Nutritionals.

In addition to distributing the industry’s top brands, Greenlane owns and operates its own in-house brands: “Pollen Gear,” “VIBES,” “Marley Natural,” “Keith Haring,” “Aerospaced & Groove,” and “Higher Standards.”

The company also runs “vapor.com,” an industry-leading online retailer with over 290,000 unique monthly visitors.

The Boca Raton, Florida-based company has operations, including seven distribution centers, in 13 cities across the U.S., Canada, and Europe.

Worldwide Distribution Expansion

In October, Greenlane announced that it would be distributing Marley Natural marijuana accessories worldwide. The exclusive deal brings the brand to specialty locations in Central and South America, the Caribbean, and Europe. (Source: “Greenlane Announces Worldwide Distribution Expansion of Marley Natural Accessories,” Greenlane Holdings Inc, October 12, 2020.)

The name “Marley Natural” pays homage to Bob Marley, the musical pioneer and activist who is synonymous with cannabis culture. Marley Natural’s line of smoking accessories features American black walnut and hand-blown borosilicate glass.

Solid Q2 Top-Line Revenue

On August 7, Greenlane announced second-quarter revenue of $32.4 million. In the second quarter of 2019, Greenlane reported total revenue of $53.0 million. (Source: “Greenlane Announces Second Quarter 2020 Financial Results,” Greenlane Holdings Inc, August 7, 2020.)

The company blamed the lower sales on the U.S. Food and Drug Administration’s (FDA’s) restrictions on the sale of certain products, mainly mint-flavored “JUUL” vape products. Lower sales were also a result of the company’s ongoing business transformation initiative, wherein it has deliberately moved away from low-margin JUUL sales to focus on higher-margin products.

To that end, JUUL sales decreased to approximately $2.3 million, from approximately $25.6 million in the second quarter of 2019. In the same time frame, sales of the company’s own retail brand were approximately $4.9 million, or 15.0% of total revenue, compared to $3.2 million, or 6.1% of total revenue,  in the second quarter of 2019.

The decrease in second-quarter net sales also reflects a full quarter of the COVID-19 pandemic having an impact on consumer purchasing behaviors and Greenlane’s operations.

The company’s transformation initiative includes streamlining and centralizing its distribution network.

In the second quarter, Greenlane closed its distribution centers in  Schenectady, New York and Delta, British Columbia. In June 2020, the company terminated the lease agreements for its Torrance, California distribution center and its Toronto, Ontario office. The company also plans to close its Jacksonville, Florida and its  Torrance and Visalia, California distribution centers in the third quarter of 2020.

Greenlane’s second-quarter 2020 gross profit was $6.7 million, or 20.8% of net sales, compared to $9.2 million, or 17.3% of net sales, in the same prior-year period.

The company reported a second-quarter 2020 net loss of $6.4 million, or $0.18 per share, compared to a net loss of $3.2 million, or $0.03 per share, in the second quarter of 2019. The adjusted net loss was $5.2 million in the second quarter of 2020, compared to an adjusted net loss of $1.2 million in the same period last year.

Greenlane ended the second quarter with cash and cash equivalents of $41.8 million and total debt of $8.2 million. At the end of fiscal 2019, Greenlane had cash and cash equivalents of $47.8 million and total debt of $8.3 million.

Analyst Take

Greenlane Holdings continues to perform well despite the challenging economic headwinds from the COVID-19 pandemic.

The company delivered solid second-quarter top-line revenue and it has been making progress toward improving its gross margin profile. It continues to announce new agreements and allocate resources toward higher-margin opportunities, which include accelerating the development of its portfolio of Greenlane-banded products.