The smoking accessory e-commerce giant Greenlane Holdings, Inc. (Nasdaq: GNLN) reported that its net sales fell 20% to $35.8 million in the third quarter ending September 30, 2020 versus $44.9 million in the 2019 third quarter. This narrowly topped the Yahoo Finance analyst estimates for revenue of $35.7 million.

The net loss for Greenlane was $13.7 million versus a net loss of $8.9 million in the 2019 third quarter. The company also delivered a loss per share of ($0.35) which missed the analyst estimates for a loss per share of ($0.10).

Greenlane attributed the drop in revenue is largely attributable to the company’s decision to move away from low-margin nicotine sales typically JUUL pods, to focus on higher-margin products. On a sequential basis, Q3 2020 net sales increased 10% from $32.4 million in the second quarter of 2020. Sales of nicotine products decreased to approximately $3.5 million in the third quarter, from approximately $21.1 million in the same time period of 2019. Net sales of Greenlane branded products grew to approximately $5.6 million, representing 15.5% of total revenue in the third quarter of 2020, as compared to approximately $3.4 million in the third quarter of 2019, or 7.5% of total revenue.

“During the third quarter, with the help of our new senior leadership team, we acted on several key initiatives related to our go forward category emphasis, organizational structure, and related staffing levels. Building on the success we’ve achieved in growing Greenlane brands and non-nicotine sales year over year by 65% and 36%, respectively, we’ve taken additional decisive steps to de-emphasize certain product lines, invest in our fastest growing and highest margin opportunities, and further reduced our headcount by 4.5%,” said Aaron LoCascio, Greenlane’s Chairman and Chief Executive Officer. “While this has had an impact on our Q3 financials, we believe these decisions have positioned Greenlane to return to near-term profitability and long term success.”

Cutting Expenses

Greenlane is sitting on top of $40.0 million in cash and had total debt was $8.2 million as of September 30, 2020, compared to $47.8 million and $8.3 million, respectively, as of December 31, 2019. Year to date, cash used in operating activities was $3.8 million, compared to $33.5 million in the prior year, an 89% improvement. Greenlane said it continues to actively manage its balance sheet to fund its growth initiatives and potential M&A opportunities.

Benefits of Branding

In the third quarter, gross profits were $2.5 million, or 6.9% of net sales, compared to $6.4 million, or 14.3% of net sales in the third quarter of 2019. The company recorded write-offs and adjustments of $4.8 million to damaged and obsolete inventory. Excluding the impact of these inventory adjustments, gross margin would otherwise have been $7.3 million and gross profit margin would otherwise have been 20.4% or 610 basis points higher than the  2019 gross profit. Greenlane expects the overall gross margin to expand from the current adjusted levels of 20.4% as it executes on its strategic vision with Greenlane Brands at its core.

Mr. LoCascio added, “We are building a comprehensive suite of high-quality, Greenlane branded products which will enable us to capture more of the margin on each product we sell. At the same time, we continue to work very closely with our brand partners to launch innovative new products into the market leveraging our best-in-class global distribution platform. I remain very encouraged that we are on track to enter 2021 on a solid footing, returning to positive adjusted EBITDA in the first quarter as a result of the changes we have implemented.”