Greenlane Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Compensation Plans

Compensation Plans

12 Months Ended

Dec. 31, 2022

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.

On August 31, 2021, we completed our merger with KushCo pursuant to the Merger Agreement dated as of March, 31, 2021. See "Note 3 - Business Acquisitions" for additional details.

At the effective time of the Mergers, options to purchase shares of Class A common stock (the “Greenlane options”) and shares of Greenlane restricted stock were treated as follows:

•Each unvested Greenlane option, other than Greenlane options held by non-employee directors of Greenlane, accelerated and became vested in full;

•Each Greenlane option held by non-employee directors of Greenlane, whether vested or unvested, remained outstanding (and unvested, as applicable) in accordance with the terms of Greenlane’s equity plan covering each such option;

•Each unvested share of Greenlane restricted stock and each unvested common unit of the Operating Company, other than Greenlane restricted stock or Greenlane restricted common units held by non-employee directors of Greenlane, accelerated and became vested in full in accordance with the terms of Greenlane’s equity plan covering each such award; and

•Each unvested share of Greenlane restricted stock or Greenlane restricted common units of Greenlane held by non-employee directors of Greenlane, whether vested or unvested, remained outstanding (and unvested, as applicable) in accordance with the terms of Greenlane’s equity plan covering each such award.

The Greenlane equity awards vesting acceleration was accounted for as a modification under ASC Topic 718, Compensation - Stock Compensation.

KushCo Equity Plan

As described in "Note 3 - Business Acquisitions," 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.

Equity-Based Compensation Expense

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


	For the year ended December 31,
(in thousands)	2022		2021
Stock options - Class A common stock	$	1,098	$	4,204
Restricted shares - Class A common stock	517		1,009
Restricted stock units (RSUs) - Class A common stock	11		53
Common units of the Operating Company	—		449
Total equity-based compensation expense	$	1,626	$	5,715

During the year ended December 31, 2022, we granted an aggregate of 129,106 options to our directors and certain employees. The stock options were granted with exercise prices ranging from $2.52 per share to $20.00 per share, and vesting periods ranging from three months to four years.

During the year ended December 31, 2021, we granted an aggregate of 83,817 options to our directors and certain employees. The stock options were granted with exercise prices ranging from $20.00 per share to $124.00 per share, and vesting periods ranging from six months to four years.

Total remaining unrecognized compensation expense as of December 31, 2022 was as follows:


	Remaining Unrecognized Compensation Expense December 31, 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	$	206	1.6
Restricted shares - Class A common stock	201		1.4
Total remaining unrecognized compensation expense	$	407

The fair value of the stock option awards granted during the years ended December 31, 2022 and 2021 was determined on the grant date using the Black-Scholes valuation model based on the following ranges of weighted-average assumptions:


	For the year ended December 31,
	2022	2021
Expected volatility (1)	100% - 100%	100% - 107%
Expected dividend yield (2)	—	—
Expected term (3)	5.88 - 6.05 years	5.25 - 6.25 years
Risk-free interest rate (4)	1.62% - 3.31%	0.78% - 1.37%

(1)Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.

(2)We assumed a dividend yield of zero as management has no plans to declare dividends in the foreseeable future.

(3)Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.

(4)The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.

A summary of stock option activity for the years ended December 31, 2022 and 2021 is as follows:


	Stock Options
	Number of Options	Weighted-Average Exercise Price
Outstanding as of December 31, 2020	68,699	$	109.40
Granted	239,466	62.80
Exercised	(5,053)	48.00
Forfeited	(37,165)	86.00
Outstanding as of December 31, 2021	265,947	71.80
Granted	129,106	9.34
Exercised	—	—
Forfeited	(167,201)	17.59
Outstanding as of December 31, 2022	227,852	$	58.88

The weighted-average grant date fair value of options granted for the years ended December 31, 2022 and 2021 was $9.34 and $62.80, respectively. The total fair value of stock options vested during the years ended December 31, 2022 and 2021 was approximately $2.1 million and $1.5 million, respectively.

Common Units of the Operating Company Granted as Equity-Based Compensation

In connection with the closing of the IPO in April 2019, we consummated certain organizational transactions with the Operating Company, as described in further detail in "Note 1—Business Operations and Organization," among which, the Operating Company reclassified unvested Class B membership interests and profits interests which had been granted as equity-based compensation into Common Units of the Operating Company.

The following table provides a summary of the unvested Common Units outstanding and related transactions:


			Common Units Subject to Vesting
Unvested Common Units as of December 31, 2020			203,904
Granted			—
Vested			(198,758)
Forfeited			(5,146)
Unvested Common Units as of December 31, 2021			—

401(k) Plan

Our 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the U.S. Internal Revenue Service annual contribution limit ($20,500 for calendar year 2022). Participants are eligible to receive a matching contribution from us of 100% of the first 3% and 50% of the next 2% of contributions. Matching contributions, other than safe-harbor contributions, vest 33% per year and are 100% vested after three years of service. Safe-harbor matching contributions are 100% vested as of the date of the contribution.