Greenlane Holdings (GNLN) Q2 2019 Earnings Call Transcript

Greenlane Holdings (GNLN -0.81%)
Q2 2019 Earnings Call
Aug 12, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to today's conference call to discuss Greenlane Holdings second-quarter fiscal-2019 financial results. [Operator instructions] Hosting today's conference will be Scott Van Winkle with ICR. As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Mr. Van Winkle. Please go ahead, sir.

Scott Van Winkle -- Investor Relations, ICR

Thank you. Good afternoon, and welcome to Greenlane Holdings conference call to discuss results for the second-quarter 2019. On the call today from Greenlane with prepared remarks are Aaron LoCascio, chief executive officer; and Ethan Rudin, chief financial officer. We're also joined by Adam Schoenfeld, our chief strategy officer; and Sasha Kadey, chief marketing officer.

By now, everyone should have access to the earnings release which went out this afternoon at approximately 4:20 p.m. Eastern Time. If you've not received the release, it's available on the Investor Relations section of Greenlane's website at gnln.com. This call is being webcast, and a replay will be available on the company's website for approximately 30 days.

Before we begin, we'd like to remind everyone that Greenlane's prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors included in Greenlane's IPO prospectus dated April 17, 2019. Please note that during today's call, management will discuss non-GAAP financial measures, including adjusted net loss and adjusted EBITDA.

Management believes these financial measures can facilitate a more complete analysis and greater transparency in the Greenlane's ongoing results of operations, particularly when comparing underlying operating results from period to period. Greenlane has included a reconciliation of these non-GAAP measures in its earnings release. This call also contains time-sensitive information that speaks only as of the date of this live broadcast, August 12, 2019. Greenlane assumes no obligation to update any forward-looking statements that may be made in today's release or call.

Now I'd like to turn the call over to the company's CEO Aaron LoCascio.

Aaron LoCascio -- Chief Executive Officer

Thanks, Scott, and good afternoon, everyone. I will briefly review our second-quarter sales highlights and business development activities and then turn the call over to Ethan to review our financial results in more detail. After that, we will open up the call for your questions. We had a record second quarter at Greenlane, generating $53 million in revenue, representing 31% revenue growth year over year and continue to expand our portfolio of leading brands and customer network.

We experienced growth during the quarter across each of the cannabis, hemp-derived CBD and liquid nicotine categories and have an aggressive pipeline of additional partnership in each segment. Gains in both the U.S. and Canada drove the growth, particularly in the vaporizer category. We also advanced international development adding key talent in Europe and Asia while continuing to invest in the expansion of our sales team.

Our goal of being the employer of choice is proving out well as we have attracted and hired top talent from leading consumer product, retail, cannabis and global tobacco organization. We will continue to search for and hire a world-class workforce to create, grow and nurture the best cannabis brands across the globe. We've also been reviewing strategic opportunities globally to accelerate our growth. We remain disciplined with the potential acquisition targets we are evaluating, as well as in our opportunity selection process.

We have significant confidence in our pipeline to continue to grow through acquisition, and M&A remains a key strategic reason we decided to go public. In the rapidly growing CBD category, last week Gallup survey found that one in seven Americans is using some form of CBD, and we are positioning ourselves as a category captain, building a portfolio of the most respected brands in the sector through exclusive distribution agreements. Over the past several months, we signed new distribution agreements to expand our portfolio of CBD offerings, including exclusive deals with Bloom Farms, Cookies, and Pax Era CBD products. These new relationships are in addition to existing exclusive relationships with Select, Mary's Nutritionals, and SLANG.

The pace of these particular partnerships illustrate that Greenlane continues to be the partner of choice for Canada's brand that seek to build global brands with hemp-derived CBD products. In an effort to expand our closed system vaporizer offerings for licensed cannabis cultivators and processors, we have signed distribution agreements with Hanu Labs and AVD PRO. These particular agreements with companies that are more focused on liquid vaporization for strider vaporization allow us to better capitalize on consumption trends. We also launched distribution of [Inaudible] products which also helps us expand our relationship with license cultivators and processors.

Finally, we extended our agreement with Canopy Growth for exclusive distribution of their iconic Storz & Bickel's vaporizers, including their next-generation Volcano Hybrid. These additions, along with continued growth of our premium child-resistant packaging brand, Pollen Gear, allows us to capture to an increasing share of the opportunity in our channels of distribution. JUUL sales were very strong this quarter, led by incredibly robust demand in Canada and continued strong growth in the U.S. We increased net sales of JUUL products nearly 70%.

Additional promotions, including a large program that began in the month of June, were among drivers of the growth. We also supported a promotion of lower nicotine concentration product during the quarter. Strong sales growth of JUUL products overall has more than offset the impact of JUUL's voluntary suspension of flavored product sales to retailers in the U.S. at the end of last year, and our growth reflects the ongoing consumer demand and brand loyalties for JUUL despite recent media attention to the regulatory environment.

Regulatory scrutiny around e-cigarettes has been a topic of interest for investors. Specifically, recent news of the City of San Francisco has established a temporary ban on e-cigarette sales has gained significant attention, so let me note a few points. First, we are in full support of responsible legislation, such as raising the minimum age of purchase with the objective of transitioning adult smokers off of combustible cigarettes, and JUUL has demonstrated strong evidence of success toward achieving this goal. Second, we are also in support of any efforts to limit sales of flavored products to age-gated retail location, such as vape shops and smoke shops.

Former FDA Commissioner Gottlieb issued draft guided to this effect while at the FDA. Third, our exposure to San Francisco is insignificant, representing approximately 0.1% of our year-to-date sale, and we would expect minimal impact from any enduring change in San Francisco. Our Greenlane house brand continue to deliver high-margin growth opportunities which we aim to invest in heavily with incremental spend on marketing and headcount. In the second quarter of 2019, we grew our house brand 61%, comprising 6.3% of our total net sales up from 5.1% a year ago.

In addition to diversifying our revenue stream, house brands are also accretive to boosting our overall gross margin, delivering nearly 35% gross margins on average in the second quarter, and we have plans to further improve them through higher-margin house brands like Vibes and new house brands that we either develop in-house or acquire. While we have cultivated a strong foundation of house brands to date, we continue to focus on expanding our portfolio. We began shipping Vibes, rolling papers this quarter into strong demand and expect our available inventory to build as the year progresses. We have quickly sold out of everything we get in, and anything with the Vibes brand is seeing strong demand.

We're also seeing growth in Aerospaced and Groove, both of which are exceeding our supply. We have now built good supply of our Marley Natural line and are expanding our sales efforts and broadening availability. As we announced last month, Pollen Gear was awarded its second patent on its child-resistant SnapTech Bags. As the leading and often imitated packaging brand, the value of the patent portfolio cannot be underestimated.

On the higher-standards front, we recently signed an LOI for a new store in Malibu, California, located next door to the landmark retailer, Fred Segal. Turning to e-commerce, net sales increased 13.6% during the second quarter of 2019. Unique visitors increased by approximately 8% to over 380,000, and transactions are up approximately 13% to over 7,600 for the quarter. In July of 2019, we completed the consolidation of the VaporNation and VapeWorld.com to Vapor.com, enabling all e-commerce customers to visit a single platform.

We are developing a focused advertising strategy to further build awareness and traffic to drive our e-commerce growth. Returning to the second quarter as a whole, we delivered growth across brands and markets and are well-positioned to continue to drive growth in the cannabis, hemp-derived CBD and liquid nicotine categories. Favorable regulatory changes, such as recent cannabis legalization in Illinois or the passage of the hemp-derived CBD legislation in Texas and Ohio, are examples of the favorable tailwinds we look to capitalize on. We continue to build upon our strong customer and supplier relationships to drive organic growth, expand our world-class portfolio of proprietary brands, and expand our network of more than 11,000 retail locations.

In closing, we're building a highly efficient global infrastructure that we believe will create an unrivaled supply chain to support the long-term growth of the cannabis, nicotine and CBD industry. We are aggressively expanding our portfolio of house brands and developing new innovative brands in categories. Along with our focus on growing our B2C efforts to Vapor.com, we are focused on driving a greater mix of our sales toward our highest-margin proprietary brands and channels. Now I'll turn the call over to Ethan to run you through the second-quarter financial results.

Ethan?

Ethan Rudin -- Chief Financial Officer

Thank you, Aaron, and good afternoon, everyone. Second-quarter net sales reached a company record of $53 million, representing a 31% increase year over year. As Aaron noted, multiple product categories and strong growth in both the U.S. and Canada drove the increase.

In terms of product categories, the net sales increase compared to the prior-year period include increases of $10.5 million from the sale of e-cigarette products, $0.8 million from the sale of child-resistant packaging and $1.8 million from the introduction of new product lines, including hemp-derived CBD products. Gross margin was 17.3% in the second quarter of 2019, compared to 20.7% in the prior-year period, reflecting changes in sales mix given the strong growth of JUUL and promotional activity to expand market share in the e-cigarette category. To provide some context on the impact of the mix and promotional activity, our gross margin, excluding the sales of e-cigarette products, would have been just over 24% during the second quarter. Salaries, benefits and payroll tax expenses increased $3.4 million year over year.

As a percentage of net sales, sales benefits and payroll taxes increased to 13.3% from 8.9% in the prior year. The increase is primarily due to the addition of 65 employees over the past year as we continue to expand our domestic sales and marketing efforts and $1.7 million of equity-based compensation expense for the three months ended June 30, 2019. We expect to see a further uptick in salaries and marketing in the back half of the year as we increase our investments in sales and marketing to support growth of our Greenlane house brands, supply and packaging e-commerce initiatives. These expenses will materialize ahead of the higher margin sales we expect to generate.

General and administrative expenses increased approximately $1.3 million in the second quarter of 2019 but were relatively consistent as a percent of net sales at 10.2%, compared to 10.1% in the prior year. General and administrative expenses included approximately 320,000 of incremental audit and legal fees and consulting expenses related to the company's transition to becoming a public company. Net loss was $3.2 million and impacted by $1.7 million of equity-based compensation expense, 300,000 of costs associated with transitioning to a public company and this compares to net income for the second quarter of 2018 of $0.2 million. Adjusted net loss was $1.2 million, compared to adjusted net income of $0.6 million in the prior year.

Adjusted net loss for the second quarter of 2019 excludes the previously mentioned expenses in net loss. Adjusted EBITDA was a loss of approximately $1.2 million for the second quarter of 2019, compared to a gain of $1.1 million for the comparable period in 2018. We ended the second quarter of 2019 with $69.3 million of cash and $8.3 million of debt. The debt reflects the financing for our corporate headquarters which was purchased in 2018.

Reiterating our long-term financial targets, we continue to anticipate approximately 25% annual net revenue growth, average gross margins of 20% plus and adjusted EBITDA margin of 10% plus. I'd remind everyone that the key to driving this gross margin profile was continued investment in growing our house brands, supply and packaging business and e-commerce, driving the stand-alone margin profile these combined businesses is accretive to our current margin mix. Additionally, Aaron previously referred to our acquisition efforts and I simply comment that since becoming a public company the velocity of acquisition opportunities has accelerated for both bolt-on and transformational acquisitions. We're focusing our efforts on evaluating targets that help us expand and accelerate our growth geographically, as well as expand and diversify our product offerings, of which currently there are many targets.

Our current M&A pipeline is robust and we are in various stages of pursuing multiple opportunities. Now more than ever, as good stewards of shareholder capital, maintaining our strictest standards for acquisitions is crucial for future long-term success and we're confident in our ability to execute on acquisition opportunities that meet or exceed our standards. With that I'll turn the call back to the operator.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Vivien Azer with Cowen and Company. Please proceed.

Vivien Azer -- Cowen and Company -- Analyst

So really solid that new quarter ahead of my expectations and I was at the higher end of the street. So just curious to hear how the quarter ended up, that's your internal expectation and it was how did that expectation -- what were the key contributing factors? Thanks.

Aaron LoCascio -- Chief Executive Officer

You know, I don't think anybody could deny the fact Vivien, that JUUL really, really outshined our expectations, the promotional activities that drop in June, really accelerated matters for us above and beyond what we thought. Admittedly, a lot of it was a promotional related to batteries rather than pods, but nonetheless, I mean it really speaks to the strength of the installed base, the fact that the installed base is growing and you know the mix shift obviously had an impact, but nonetheless, we're excited to get the revenue and we're excited to see the strength of the brand in partnership with JUUL.

Vivien Azer -- Cowen and Company -- Analyst

That makes perfect sense and I appreciate your plans are on that. I don't necessarily though like raise those type of question, which is that Ethan, you reiterated your commitment getting gross margin over 20% but as you enumerated the growth rate of your underlying businesses in particular, e-com only up 14%, sorry and the broader context of consumer stapled upper is 14 as model to be sure. Like how do you drive positive margin mix when JUULs growing 17, cannabis 17 and 16, e-commerce growing 14% but how actually do you guide margin expansion?

Ethan Rudin -- Chief Financial Officer

So, few points here to make. One I would say is that you know, as we indicated in our prepared commentary that we plan to step on the gas. Obviously, we're seeing some very, very early success with Vibes. We've got new store opening in higher standards and we have significant number of levers to pull to really drive that mix shift.

I don't want to stay away from JUUL but to actually compete with it as piece of our portfolio and so, the other side of the story for the brands that are more third-party versus house we're really subject to the cycle of innovation and truth be told we're waiting for some really new and exciting things to come out from partners that everybody wants to have it dialed in right, everybody want to have their new products placed in the right doors and we're taking a really methodical and strategic approach to thinking about what new pipeline looks like and how that translates across the channels of trade we compete in.

Vivien Azer -- Cowen and Company -- Analyst

And I don't mean to monopolize the call. I promise these are my last two follow-ups that they are both related. And so, number one, you called Pollen Gear and in your prepared remarks that obviously on e-com and you also called out higher standards and I am just a little bit confused, is it true are you asserting the higher standards is higher margin than the corporate average?

Ethan Rudin -- Chief Financial Officer

Yes. Higher standards, both our retail brick-and-mortar stores, as well as the higher standard portfolio of products are substantially higher margins than our corporate average.

Vivien Azer -- Cowen and Company -- Analyst

And then I promise my last question. You guys just like commented on M&A and like "new opportunities" does that your margins higher it reminds me of the most recent announcement that was well received by the market in terms of disposals, that goal going to be-and there was you know kind of a vast patterns around like a new hybrid, can you extend on that. That's my all question, thank you.

Aaron LoCascio -- Chief Executive Officer

Sure. So as Ethan has mentioned before in our environment with the pipeline that we built, one of the things that is always exciting to see internally that drive the next level of growth is innovation. And it's been a little while since we've seen new and innovative products come to our primary portfolio of the products because we are so predominantly paid, so the launch of the Volcano Hybrid certainly represents a very exciting opportunity for us to expand upon the distribution of the products and get the next class of customer that's been looking for next generation product bought into it.

Operator

Our next question is from Derek Dley with Canaccord Genuity. Please proceed.

Derek Dley -- Canaccord Genuity -- Analyst

Just following up on that last one around acquisition. Can you just give us an idea of some of the things that you're looking for I mean is there focus on acquiring more brand is it more acquiring more distribution assets potentially globally or even looking at some technology assets I mean just how about sort of think about the framework with your acquisition strategy?

Aaron LoCascio -- Chief Executive Officer

So we look at acquisitions through two different lenses, one is horizontally which is really an expansion or fortification of our distribution pipeline more notably through geographic expansion. And then the other lens is vertical acquisitions where we can really look to expand upon our margin profile and again build upon the house of brands that we've already built and continue to build.

Derek Dley -- Canaccord Genuity -- Analyst

And on that house of brand I mean can you give us an update on sort of where your house of brands, your private label penetration was that during the quarter?

Ethan Rudin -- Chief Financial Officer

In a prior quarter we had mentioned that it was 5.1% of the revenue and I believe now let me just double check I think it's-bear with me for a second, 6.3% of the portfolio.

Derek Dley -- Canaccord Genuity -- Analyst

Ok. Great. That's in good progression. And you called out Vibes as being obviously having an exceptional sell-through with your distribution partners being sold out so on and so forth.

Can you comment on some of the other major private label brands like Pollen Gear still relatively early stage but how about the higher standards brands for example are you seeing good sell-through with some of the other brands?

Aaron LoCascio -- Chief Executive Officer

Yes, I mean our higher standards brand we see the growth whenever we open up a new store. So there's obviously more visibility and so obviously having stand-alone company retail, but then also how to be a brand within our B2B and B2C portfolio we see a lift there as well as just general awareness helps. We're really, really excited about Keith Haring's suite of products that are coming out in smoking and vaping accessories. We're really excited about Marley Natural.

We're seeing growth across all of our house brands in a fairly even keel, so super excited about them.

Derek Dley -- Canaccord Genuity -- Analyst

And then last one from me and I do appreciate if you can disclose but you mentioned obviously JUUL sales were up 70% year over year during the quarter. Canada is doing exceptionally well, and the U.S. still growing. Can you give us sort of the magnitude of difference I mean was the U.S.

up so high within up in the double-digits or what was the magnitude difference there?

Ethan Rudin -- Chief Financial Officer

We're not breaking that out just yet, is it actually-we haven't split out-I am sorry are you talking about the revenue mix or you talking about the growth, it was unclear?

Derek Dley -- Canaccord Genuity -- Analyst

The growth, sorry, the growth?

Ethan Rudin -- Chief Financial Officer

So the U.S. growth for JUUL quarter over quarter was 48%.

Derek Dley -- Canaccord Genuity -- Analyst

And how about Canada?

Ethan Rudin -- Chief Financial Officer

I'm sorry, and in Canada that figure-we didn't have JUUL in Canada Q2 of last year.

Derek Dley -- Canaccord Genuity -- Analyst

Sorry, so that 48 were year-over-year. Perfect. That is very helpful. Thank you very much, and congrats on the solid quarter.

Operator

Our next question is from Scott Fortune with ROTH Capital Partners. Please proceed.

Scott Fortune -- ROTH Capital Partners -- Analyst

Yes, I want to expand on the CBD brand offerings and now you have I believe six or seven different brands of strength coming in certain states for the CBD regulations are varying. And then what type of SKUs and offerings are you seeing from our restocking standpoint whether the tincture oil and such or topical front on. Where can we see strength so that you can call out states or the product offerings from that standpoint?

Aaron LoCascio -- Chief Executive Officer

So we are seeing strong growth in our CBD brands across all geographies in the United States. Some of these top selling products as we expected are the vaporable as well as the tinctures. Although I don't want to take away from the topicals that we've been doing quite well with this as well and again it's really for us. Internally it's about building a strong portfolio that really provides a good merchandising platform for our customers because they are looking for multiple brands.

So we'll continue to evaluate others as we progress.

Scott Fortune -- ROTH Capital Partners -- Analyst

And note on that have you seen new distribution partners come onboard five years established 11,000 retail kind of vaping smoke shops from that standpoint are you in discussions with that new distribution.

Aaron LoCascio -- Chief Executive Officer

Yes, we're in early discussions with all sorts of distribution I mean look at the end of the day we're trying to figure out the best placement for these products so that consumers can try them. Obviously, we have some semblance of dominance over the 11,000 doors in our chosen channels of trade, but we have a creative out of the box thinking sales force that's also thinking about what everybody else is thinking about in terms of food drug and mass. And other interesting places where we could be placing our portfolio of products. So yeah we're helping everybody try and spread out their CBD and their cannabis strategy and we really enjoy engaging in that dialogue with potential partners.

Scott Fortune -- ROTH Capital Partners -- Analyst

And then last thing on CBD what is the margin profile as far as JUUL or some may other higher margins at the same what's the profile on that business part of it?

Aaron LoCascio -- Chief Executive Officer

We have such a diverse SKU assortment in CBD that it would be a misnomer for me to give you an average at this juncture given the diversity in product we're carrying.

Scott Fortune -- ROTH Capital Partners -- Analyst

OK. And last thing, OK?

Aaron LoCascio -- Chief Executive Officer

But to comment it does have a higher margin profile than a lot of the other products that were selling in the e-cigarette area.

Scott Fortune -- ROTH Capital Partners -- Analyst

And last thing higher standards you signed up on Malibu, you've mentioned you want to open up two or three potential higher standards retail stores by the end of the year where are we kind of real estate located and signed for expectations kind of toward the end of this year?

Aaron LoCascio -- Chief Executive Officer

We have a very fortunate problem Scott that a lot of folks really want a higher standard store in their lifestyle center or wherever you know cannabis consumers aggregate and congregate. It's also a great education center. So we're really kind of agnostic we're just looking for the best real estate the best foot traffic and the best place to showcase our brands.

Scott Fortune -- ROTH Capital Partners -- Analyst

Any guidance on the number of stores potentially by the end of this year?

Aaron LoCascio -- Chief Executive Officer

No different than what we've already guided I think we're trying to plan our stand-alone retail relatively conservatively.

Operator

Our next question is from Mike Grondahl with Northland Capital Markets. Please proceed.

Mike Grondahl -- Northland Capital Markets -- Analyst

With your CBD product that you're selling roughly how many of your 11,000 retail locations that you touched how penetrated are you into those 11,000?

Aaron LoCascio -- Chief Executive Officer

I say right now we're in very early innings I mean obviously with Select and Mary's we picked up a lot of doors that they have kind of given to us. And so we've been working through those to make sure that we got the assortment correct. We've got it priced appropriately but when we approached new product launch, we don't saturation bomb. We look for quality doors, we look at reorder rates we look to generate excitement in sales velocity.

And so we're not really commenting right now on the number of doors and the percentage penetration, but I will say there is healthy runway ahead of us.

Mike Grondahl -- Northland Capital Markets -- Analyst

And then with your vaporizer product I know you've been looking at sort of the big box in mass retail. How is that progressing a sort of a new opportunity?

Aaron LoCascio -- Chief Executive Officer

But we continue to service big box retailers in Canada with the likes of Loblaw's Shoppers Drug Mart and OCS. We have been in discussion with the mass retailers in the United States where there is a number of interesting mass retailers that are looking to tip a different toe in the water if you will. So it will be interesting to see how those products perform in those places and we look forward to kind of talking more about it in near future.

Mike Grondahl -- Northland Capital Markets -- Analyst

And then lastly you gave a number was that e-commerce growth or was that percent of revenue when you started talking about e-commerce, I didn't catch the number?

Aaron LoCascio -- Chief Executive Officer

That was e-commerce growth.

Mike Grondahl -- Northland Capital Markets -- Analyst

It was 15.7% or can you repeat it?

Aaron LoCascio -- Chief Executive Officer

13.6.

Operator

Our next question is from Glenn Mattson with Ladenburg Thalmann. Please proceed.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

So curious this is the second quarter in a row that kind of JUUL promotions led to outperformance in that category, can you speak to whether or not that cadence should remain the same, do you expect further promotion of the second half or is there any chance or risk that they maybe some revenue got pulled forward by some of these promotions?

Aaron LoCascio -- Chief Executive Officer

JUUL has been pretty consistent with the number and frequency and velocity of promotions. I wouldn't expect that to change, but I remind you that, JUUL remain -- even in quarters where they have historically not been promotions is a very, very, very strong performer. Again they ran the promotion on the batteries with the primary objective is increasing the installed base having more and more additional adult smokers make the switch from traditional combustion products to the JUUL platform and it proved out to be working remarkably well. And there's certainly some price elasticity into bringing those customers onto the platform but once they're on there we've shown tremendous evidence that they are sticky, they stay.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

And beyond the initial headlines on the when those -- San Francisco, on the regulatory front when those issues came up, I haven't seen much news on it. Can you talk anything about kind of follow through there and whether or not you've seen any other cities or anything think about things similar to San Francisco or its been the one-off?

Ethan Rudin -- Chief Financial Officer

So there's always going to be individual municipalities that are evaluating these products, especially ahead of the FDA actually ironing out their approach to these products, so it's unclear as to if and when any additional municipalities may take a similar stance. But I remind you that we have a very, very, very robust distribution pipeline for these products. They're much in the way that San Francisco represented 0.1% of our total sales in the first half of the year, you can expect similar type of figures out of individual municipalities. And Canada, which is not under the FDA is showing very strong robust growth and we've mentioned that we are expanding our distribution internationally, so that also represents additional opportunities, like in Europe, in the U.K.

in particular, where they really embrace vaporization as an alternative for adult smokers. So we expect -- we don't expect any negative, if any additional municipalities take a similar approach, we do not expect to have any material impact on our financial statements.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Thanks for that, and Ethan you mentioned the salary expense running ahead of the benefit you're going to gain from higher margin sales and things like that, I guess you -- how do we think about this, is this kind of incrementally up in dollar terms sequentially over the next few quarters?

Ethan Rudin -- Chief Financial Officer

Yes. We're not really giving any guidance other than there's probably going to be a couple million-dollar variance from our initial expectations.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Do you have a number for a stock comp expense for this year like what your expectation is?

Ethan Rudin -- Chief Financial Officer

Given how close we are to the IPO and in fact that we're ramping up on talent. I would expect it to be on the higher side for now but not terribly dissimilar from the guidance and what you've seen this quarter.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

And last one for me. On the financial criteria for acquisitions, can you just remind us about the framework on how you're thinking about like return on investment in the need of acquisitions [Inaudible]

Ethan Rudin -- Chief Financial Officer

Yes, obviously given you know, our public company status and being the stewards of shareholder capital now, we're thinking about all of the traditional metrics that you'd be thinking about doing public company M&A, we need to have accretion in both our growth and our margins. Obviously, it has to be accretive to our earnings per share but also more importantly, strategically it has to be a platform for us to jump-off of to grow an entirely new country continent, bring on a new product with margin accretion to the portfolio and look we're ferreting through several opportunities at any one time in various stages, and obviously want to make sure that we get it right so we're really excited and hopefully be able to talk about some of the stuff in the near future.

Operator

[Operator instructions] We now have a follow-up question from Vivien Azer with Cowen and Company. Please proceed.

Vivien Azer -- Cowen and Company -- Analyst

You have been keeping items and then like one more strategic question for you. Number one, and I apologies if I missed it. Have you just closed what CBD was as a percent of sales?

Aaron LoCascio -- Chief Executive Officer

We have not. We actually characterized the growth as $1.8 million of new products, of which CBD is a meaningful portion of it and that's the growth.

Vivien Azer -- Cowen and Company -- Analyst

So $1.8 million is incremental revenue, of which CBD was 1.5?

Aaron LoCascio -- Chief Executive Officer

A meaningful percentage, yes.

Vivien Azer -- Cowen and Company -- Analyst

Meaningful, perfect, OK. That's great. Thank you. Second [Inaudible] has come up in a couple of times does in the prepared remarks, as well as Q&A geographic opportunities specifically highlighting Europe, so let's be like very clear.

Number one, are you in Europe?

Aaron LoCascio -- Chief Executive Officer

Yes we've established the density and hired our staff in Europe but we're looking very closely in future quarters to aggressively accelerate on Europe as our next jumping point geographically.

Vivien Azer -- Cowen and Company -- Analyst

So Europe is basically that's like an SG&A overhang or right now with revenue to come, is that right?

Aaron LoCascio -- Chief Executive Officer

Yes, but it's very, very small.

Vivien Azer -- Cowen and Company -- Analyst

The next question is on JUUL, so you called out the timing of the promo in June and maybe this small housekeeping than strategic that my understanding was that June ran by annual promos and you guys actually called it out on your last earnings call. And this is an off-cycle promo that the language I was hearing from you was that this is like part of like normal operating procedure and not that's just not my understanding of what JUUL does, so if you could elaborate on that, that will be helpful? Thank you.

Aaron LoCascio -- Chief Executive Officer

So I would suggest I mean, historically JUULs actually ran their promotions quarterly. They've not necessarily provided a -- they haven't provided a calendar of promotion to expect going forward but they've very consistently have done quarterly promotions. You have to understand that JUUL has grown very expensively, very quickly as well. And some of the -- it was actually two promotions that took place in this last quarter.

One promotion was actually geared toward SKU, four line compliance would expand upon the number of SKUs at given customers purchasing with a focus on the lower nicotine products that they carry. So again, while I don't have a calendar, what you expect from JUUL going forward, again I would tell you that they have been very consistent in their promotional activities and I see no reason to believe that it will change in the near term.

Vivien Azer -- Cowen and Company -- Analyst

Does any of this have to do with Altria's investment in JUUL in terms of the personal cadence? And so just like dive a little deeper on that, Altria is now doing Altria client services that are offering three key benefits to JUUL. Number one, is back power optimization. Number two is just broader like sales force and number three, with the accompaniment of the e-com data base and number three is the impact promos. So but do you feel or have you been sat with JUUL that they are trying to harmonize some of that activities with what they are doing in your process rate?

Aaron LoCascio -- Chief Executive Officer

You know Vivien, you are really on top of this as we are and I would say that we try not to second guess what Altria is doing as part of running our business. We have direct pipes into our partners with JUUL and I think that whether it may obviously be some correlation and some overlap, it's not something we openly discuss.

Operator

We have reached end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Aaron LoCascio -- Chief Executive Officer

All right. Well, thank you for joining us today. We appreciate your support and are confident in this next phase of growth for Greenlane. We look forward to speaking with you soon.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Scott Van Winkle -- Investor Relations, ICR

Aaron LoCascio -- Chief Executive Officer

Ethan Rudin -- Chief Financial Officer

Vivien Azer -- Cowen and Company -- Analyst

Derek Dley -- Canaccord Genuity -- Analyst

Scott Fortune -- ROTH Capital Partners -- Analyst

Mike Grondahl -- Northland Capital Markets -- Analyst

Glenn Mattson -- Ladenburg Thalmann -- Analyst

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