Annual report pursuant to Section 13 and 15(d)

Business Acquisitions

v3.23.1
Business Acquisitions
 12 Months Ended
Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract]  
Business Acquisitions BUSINESS ACQUISITIONS
Eyce

On March 2, 2021, we acquired substantially all the assets of Eyce LLC (“Eyce”), a designer and manufacturer of silicone pipes, bubblers, rigs, and other smoking and vaporization-related accessories and merchandise. We acquired Eyce to take advantage of expected synergies, which include increased margins from the direct integration of one of our top-selling product lines into our offerings of Greenlane Brand products (as defined below) and the enlistment of key talent in Eyce’s founding owners.

We accounted for the Eyce acquisition as a business combination under the acquisition method under ASC Topic 805, Business Combinations. Eyce has been consolidated in our consolidated financial statements commencing on March 2, 2021, the date of acquisition. The purchase price for the Eyce acquisition was allocated based on estimates of the fair value of net assets acquired at the acquisition date, with the excess allocated to goodwill. The total purchase consideration for the Eyce acquisition consisted of the following:
(in thousands) Purchase Consideration
Cash $ 2,403 
Class A common stock 2,005 
Promissory note 2,503 
Contingent consideration – payable in cash 914 
Contingent consideration – payable in Class A common stock 914 
Total purchase consideration $ 8,739 
During the year ended December 31, 2021, we recognized approximately $0.3 million in Eyce acquisition-related costs, which were included within "general and administrative" expenses in our consolidated statement of operations and comprehensive loss.
The Eyce contingent consideration arrangement required us to make contingent payments based on the achievement of certain revenue and EBITDA performance targets for the year ended December 31, 2021 (the “2021 Contingent Payment”), as well as the year ending December 31, 2022 (the “2022 Contingent Payment”), as set forth in the acquisition agreement.
We estimated the fair value of the contingent consideration by using a Monte Carlo simulation that included significant unobservable inputs 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.
The 2021 Contingent Payment was earned as of December 31, 2021, and the related liability of $1.8 million was included within “Accrued expenses and other current liabilities” on our consolidated balance sheet. As partial consideration for Eyce’s attainment of the financial benchmarks related to the 2021 Contingent Payment, we issued 39,776 shares of our Class A common stock on January 14, 2022 to Eyce and certain of its affiliates. See “Note 4—Fair Value of Financial Instruments” for additional details related to the Eyce contingent consideration arrangement.
As a result of additional information obtained about facts and circumstances that existed as of the acquisition date, we calculated an adjustment to the purchase price related to the estimated fair value of contingent consideration issued, and recorded a measurement period adjustment during the second quarter of 2021. The following table summarizes the purchase price allocation and the estimated fair value of the net assets acquired at the date of acquisition.
(in thousands) Estimated Fair Value
as of Acquisition Date
(as previously reported)		 Measurement Period Adjustments Estimated Fair Value as of Acquisition Date
(as adjusted)
Inventory $ 92  $ —  $ 92 
Developed technology 1,738  —  1,738 
Trade name 1,294  —  1,294 
Customer relationships 165  —  165 
Goodwill 4,840  610  5,450 
Total purchase consideration $ 8,129  $ 610  $ 8,739 

Goodwill generated from the Eyce acquisition was primarily related to the value we placed on expected business synergies. For additional information about goodwill, see "Note 8—Supplemental Financial Statement Information.
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 $0.3 million, respectively, within "other income (expense), net" in our consolidated statement of operations and comprehensive income for the year ended December 31, 2022 to write-off the balance of the Eyce 2022 Contingent Payment. Also, we recorded approximately $1.3 million in compensation expense related to the Amended 2022 Contingent Payment within "salaries, benefits and payroll taxes" in our consolidated statement of operations and comprehensive income for the year ended December 31, 2022.
Merger with KushCo
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. Greenlane’s merger with KushCo created a leading ancillary cannabis products and services company. The combined company serves a broad range of customers, which includes many of the leading MSOs and LPs, the top smoke shops in the United States, and millions of consumers globally.

Pursuant to the Merger Agreement, Merger Sub Gotham 1, LLC, our wholly owned subsidiary (“Merger Sub 1”), merged with KushCo (the “Initial Surviving Corporation”) (“Merger 1”) and then the Initial Surviving Corporation was merged with and into Merger Sub Gotham 2, LLC, our wholly owned subsidiary (“Merger Sub 2”), with Merger Sub 2 as the surviving limited liability company and a wholly owned subsidiary of Greenlane (“Merger 2,” and together with Merger 1, the “Mergers”).

At the effective time of the Mergers, each KushCo stockholder received 0.3016 shares of Class A common stock (excluding the effect of the Reverse Stock Split), as determined pursuant to the exchange ratio formula set forth in the Merger Agreement (the “Exchange Ratio”), for each share of KushCo’s common stock, $0.001 par value per share (“KushCo common stock”), issued and outstanding immediately prior to the effective time of the Mergers, with cash paid for any fractional shares that a KushCo stockholder would have otherwise been entitled to receive. Immediately following the Mergers, stockholders that held Greenlane common stock prior to the completion of the Mergers owned 51.9% and former KushCo stockholders owned 48.1% of the equity of the combined company on a fully diluted basis.

Pursuant to the Merger Agreement, immediately prior to the consummation of the Mergers, 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 Mergers, and Greenlane adopted the A&R Charter, which eliminated Class C common stock as a class of Greenlane’s capital stock.

Treatment of KushCo Equity Awards

At the effective time of the Mergers, options to purchase shares of KushCo common stock (“KushCo options”) were treated as follows:

•Each KushCo option that was outstanding immediately prior to the Merger 1 effective time, whether or not then vested or exercisable (but after taking into account any acceleration or vesting as provided under the KushCo equity plan covering such option), was converted into an option to purchase, on the same terms and conditions that applied to such KushCo option immediately prior to the Merger 1 effective time, (A) that number of shares of Class A common stock, rounded down to the nearest whole share, determined by multiplying (1) the total number of KushCo shares subject to such KushCo option immediately prior to the Merger 1 effective time by (2) the Exchange Ratio, (B) at a per-share exercise price, rounded up to the nearest whole cent, determined by dividing (1) the exercise price per share covered by such KushCo option immediately prior to the Merger 1 effective time by (2) the Exchange Ratio;

•Greenlane assumed the sponsorship of the KushCo Holdings, Inc. 2016 Stock Incentive Plan covering such KushCo options (the “KushCo Equity Plan”), and all references to KushCo therein were deemed references to Greenlane and all references to shares of KushCo common stock therein were deemed references to Class A common stock; and

•Each KushCo restricted stock unit (a “KushCo RSU”) that was then held and remained outstanding immediately prior to the Merger 1 effective time accelerated and became vested in full in accordance with the terms of the KushCo equity plan covering such KushCo RSUs and each such KushCo RSU was immediately settled and treated in the same manner as shares of KushCo common stock in the Mergers.

Effect of Merger 1 on KushCo Warrants

Additionally, each warrant to purchase one or more shares of KushCo common stock (a “KushCo Warrant”), whether exercisable or not, was converted into a warrant to purchase Class A common stock. Greenlane assumed each such KushCo Warrant in accordance with its terms (the “Assumed Warrants”). With respect to the Assumed Warrants: (i) the Assumed Warrants are exercisable solely for shares of Class A common stock; (ii) the number of shares of Class A common stock subject to such Assumed Warrants is equal to the number of shares of KushCo common stock subject to such Assumed Warrants as of immediately prior to the effective time of Merger 1 multiplied by the Exchange Ratio, rounded up to the nearest whole share; and (iii) the per share exercise price under each such Assumed Warrant was adjusted by dividing the per share exercise price under such Assumed Warrant by the Exchange Ratio and rounding up to the nearest cent.
Estimated Purchase Consideration and Purchase Price Allocation
We accounted for the KushCo acquisition as a business combination under the acquisition method under ASC Topic 805, Business Combinations. KushCo has been consolidated in our consolidated financial statements commencing on August 31, 2021, the date of acquisition.
We allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill. We determined the preliminary estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimates made by management. The fair values assigned to tangible and intangible assets acquired and liabilities assumed were based on management's estimates and assumptions.
The total estimated purchase consideration for the KushCo acquisition consisted of the following:
(in thousands) Purchase Consideration
Class A common stock (1) $ 123,491 
Estimated fair value of assumed warrants 8,423 
Estimated fair value of replaced equity awards 4,759 
Greenlane cash payments on behalf of KushCo (2) 12,183 
Total purchase consideration $ 148,856 
(1) Based on approximately 2.4 million shares of Greenlane Class A common stock issued, multiplied by the closing price per share of Greenlane Class A common stock on Nasdaq on August 31, 2021, the acquisition date, of $50.8.
(2) Represents cash paid by Greenlane on the acquisition date to extinguish certain debt and other liabilities of KushCo, which were not legally assumed by Greenlane.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price allocation (in thousands):
(in thousands) Estimated Fair Value
as of Acquisition Date
(as previously reported)		 Measurement Period Adjustments Estimated Fair Value as of Acquisition Date
(as adjusted)
Assets acquired
Cash $ 2,302  $ —  $ 2,302 
Accounts receivable 7,110  —  7,110 
Inventories 35,112  —  35,112 
Vendor deposits 7,011  —  7,011 
Other current assets 8,111  —  8,111 
Property and equipment 6,200  —  6,200 
Operating lease right-of-use assets 7,581  —  7,581 
Other assets 2,896  —  2,896 
Intangible assets – customer relationships 39,500  —  39,500 
Intangible assets – trademarks 29,500  —  29,500 
Intangible assets – proprietary design library 3,100  —  3,100 
Goodwill 24,314  19  24,333 
Total estimated assets acquired 172,737  19  172,756 
Liabilities assumed
Accounts payable 5,876  5,876 
Accrued expenses and other current liabilities 6,496  19  6,515 
Customer deposits 3,934  3,934 
Operating lease liabilities 7,575  7,575 
Total estimated liabilities assumed 23,881  19  23,900 
Total estimated purchase price and consideration transferred in the merger $ 148,856  $ —  $ 148,856 
Goodwill generated from the KushCo acquisition was primarily related to the value we placed on expected business synergies. For additional information about goodwill, see "Note 8—Supplemental Financial Statement Information.
During the year ended December 31, 2021, we recognized transaction costs of approximately $7.8 million in connection with the Mergers, consisting primarily of advisory, legal, valuation and accounting fees, which were recorded in “general and administrative expenses” in the accompanying consolidated statement of operations and comprehensive loss.
DaVinci

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. We acquired DaVinci to take advantage of expected synergies, which include increased margins and significant enhancement of our offerings of Greenlane Brands products (as defined below) the enlistment of key talent in DaVinci's founders.

We accounted for the DaVinci acquisition as a business combination under the acquisition method under ASC Topic 805, Business Combinations. DaVinci has been consolidated in our consolidated financial statements commencing on November 29, 2021, the date of acquisition.
We allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill. We determined the preliminary estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimated made by management. The fair values assigned to tangible and intangible assets acquired and liabilities assumed were based on management's estimates and assumptions.
The total purchase consideration for the DaVinci acquisition consisted of the following:
(in thousands) Purchase Consideration
Cash $ 3,362 
Class A common stock 3,282 
Promissory note 5,000 
2021 DaVinci Contingent Payment – payable in Class A common stock 2,610 
Product Launch Contingent Payment – payable in cash 1,169 
Product Launch Contingent Payment – payable in Class A common stock 1,062 
Total purchase consideration $ 16,485 

During the year ended December 31, 2021, we recognized approximately $0.3 million in DaVinci acquisition-related costs, which were included within “general and administrative” expenses in our consolidated statement of operations and comprehensive loss.
The DaVinci contingent consideration arrangement included: (1) the 2021 Contingent Payment, which was based on the achievement of certain financial benchmarks measured during the period January 1, 2021 and December 31, 2021, and was payable in shares of our Class A common stock, and (2) Product Launch Contingent Payments, which are payable in cash and shares of our Class A common stock. The 2021 DaVinci Contingent Payment was earned as of December 31, 2021, based upon which the we issued 151,515 shares of Class A Common Stock on February 25, 2022 to DaVinci and certain of its affiliates.
The estimated fair value of the 2021 DaVinci Contingent Payment as of the acquisition date reflected a discount for lack of marketability, as the Class A common stock issued to the sellers has a restriction period. We estimated the fair value of the Product Launch Contingent Payments using a form of the scenario-based method, which includes significant unobservable inputs such management’s identification of probability-weighted outcomes and a risk-adjusted discount rate over the earn-out period.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price allocation (in thousands):
(in thousands) Estimated Fair Value as of Acquisition Date
Assets acquired
Accounts receivable $ 94 
Inventories 1,444 
Vendor deposits 132 
Property and equipment 112 
Intangible assets – customer relationships 1,362 
Intangible assets – tradenames 2,316 
Intangible assets – developed technology 2,195 
Goodwill 9,052 
Total estimated assets acquired 16,707 
Liabilities assumed
Accounts payable 59 
Accrued expenses and other current liabilities 123 
Customer deposits 40 
Total estimated liabilities assumed 222 
Total estimated purchase price and consideration transferred $ 16,485 

Goodwill generated from the DaVinci acquisition was primarily related to the value we placed on expected business synergies. For additional information about goodwill, see "Note 8—Supplemental Financial Statement Information.
Supplemental Unaudited Pro Forma Financial Information

The following table presents pro forma results for the year ended December 31, 2021 as if our acquisition of Eyce and DaVinci, along with the closing of the merger with KushCo, had occurred on January 1, 2020, and Eyce, DaVinci, and KushCo’s results had been included in our consolidated results beginning on that date (in thousands):
For the year ended December 31, 2021
(unaudited)
Net sales $ 248,691 
Cost of sales 221,710 
Gross profit 26,981 
Net loss $ (102,685)

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, 2020.

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.

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 year ended December 31, 2022, which is included as an offset in "general and administrative expenses" in our consolidated statements of operations and comprehensive loss, as well as a reduction to non-controlling interest on our consolidated balance sheet as of December 31, 2022 of $1.8 million. In conjunction with the Sale Agreement, we returned inventory to VIBES with a carrying value of approximately $2.4 million.