Exclusive Interview with Greenlane CEO Nick Kovacevich
KushCo and Greenlane completed their merger in September. Now, Greenlane Holdings (NASDAQ: GNLN) is focused on the continued growth of its ancillary consumer products platform in the cannabis industry. With relationships with leading MSOs on the industrial goods side and a growing portfolio of owned brands on the consumer products side, the NASDAQ-listed company is looking to further scale as a global operator. CEO Nick Kovacevich last spoke with New Cannabis Ventures ahead of the merger, and now, he has reconnected to talk about the path ahead for Greenlane. The audio of the entire conversation is available at the end of this written summary.
Post-Merger Integration
Greenlane is approaching 100 days post-merger, and, according to Kovacevich, the company is on track to deliver on cost synergies. Previously, the company projected $15 to $20 million in cost synergies within 24 months of the merger. Some progress has been simple. The company has been able to go from two auditors to one, from two legal firms to one and from two listing fees to one. Other aspects of achieving the targeted synergies are more complicated, but Kovacevich is confident that the company will align with or outpace its previous synergies guidance.
The merger of Greenlane and KushCo brought talent from both companies to the combined entity’s team. Right now, the company has 285 employees focused on executing Greenlane’s strategy.
Portfolio and Distribution Reach
On the consumer products side of its business, Greenlane is building a portfolio of brands. It currently has eight owned consumer product brands: DaVinci, Vibes, K.Haring, Marley Natural, Groove, Aerospaced, Eyce and Higher Standards. Consumer product brands account for about 25 percent of Greenlane’s overall business. The company has the opportunity to expand the product offerings within the categories in its consumer products portfolio, according to Kovacevich.
Greenlane also works with third-party brand partners, distributing products from brands like PAX, Grenco Science, Storz & Bickel and more. The company is focused on building products for its own brands, which gives it the most value and margin, as well as launching new products with its strategic partners.
The industrial goods division accounts for about 50 percent of Greenlane’s business. The company offers packaging through its Pollen Gear brand. It also has a partnership with CCELL. Its ethanol and butane business is also a part of its industrial goods division.
The company has extensive distribution reach in North America. It ships products from warehouses in California, Kentucky and Massachusetts. It also has distribution reach in Canada and Europe, markets where it uses 3PL partners.
Greenlane is about to enter South America via partnerships. As a non-plant-touching company, it can more easily ship products worldwide and scale globally. MSOs, single-state operators, major cannabis brands and retail stores are among its customers. Greenlane also has ecommerce operations for direct-to-consumer shoppers.
M&A Strategy
The company closed the acquisition of vape manufacturer DaVinci in November. While Greenlane is partnered with CCELL on the liquid-filled cartridges side of the business, the DaVinci acquisition adds dry vaporizers to its portfolio.
Greenlane is building a platform that gives it the opportunity to roll up the fragmented consumer products space in the ancillary cannabis business. The company has a NASDAQ listing and the scale to be an attractive option for smaller players in the ancillary space. That strategy is on the horizon, but the speed at which the company pursues it will depend on the market.
Right now, cannabis multiples are depressed, making it more difficult to go out and make accretive acquisitions. Greenlane is keeping the deal pipeline warm, waiting for more value in its equity, according to Kovacevich.
While M&A is on the company’s radar, Greenlane is also executing on significant organic growth. The company has a robust innovation pipeline, and it is increasing its consumer brand revenue.
CCELL Partnership
The company has a relationship with CCELL dating back to 2018. Early on in that relationship, the team was aware of patent infringement. Competitors would sell knockoff CCELL products in the market. Since then, Smoore Technology has completed its IPO, raising nearly $1 billion in cash. Now, it is taking the opportunity to enforce the protection of its IP. As a licensee and partner, Greenlane was involved in filing an International Trade Commission complaint. If the complaint is upheld, the ITC will block the importation of products that infringe on the IP.
If this patent protection comes to fruition, Greenlane will be in a position to take back market share, and consumers will be protected from potentially faulty products, according to Kovacevich.
Managing through a Tough Market
With cannabis multiples depressed, the industry finds itself in a tough capital markets position. While Greenlane could use the additional capital to fuel growth, it currently has a strong balance sheet and no debt, according to Kovacevich. The company owns the building in which it is headquartered. It has about $60 million in inventory, other receivables and cash on hand that it can put to work. It plans to leverage its vendors and partners to garner working capital support, ultimately increasing sales and margins to get to profitability and positive cash flow.
While cannabis companies are operating in a challenging environment, Greenlane (and the two companies that created it) has demonstrated the ability to navigate through challenges. Greenlane and KushCo made it through the vaping crisis, and the company has continued to push forward through the COVID-19 pandemic. It continues to expand its business, and Kovacevich is optimistic about what is to come in 2022.
2022 Outlook
Greenlane announced with its Q3 results that it is targeting $70 million in Greenlane brand revenue in 2022 and $100 million in 2023. More markets are legalizing cannabis and global freight issues are set to improve, according to Kovacevich. Greenlane is selling to 22 of the 25 top MSOs in the U.S., and as it expands its business, its cross-selling opportunities will grow as well. While cannabis operators and investors are currently frustrated, Greenlane is an integral supply chain partner for the cannabis business, and Kovacevich is looking forward to tailwinds.
New Cannabis Ventures provides a sponsored Investor Dashboard for Greenlane Holdings. Listen to the entire interview:
