Why the Money May Flow to KushCo Holdings Inc (OTCMKTS:KSHB)

Why the Money May Flow to KushCo Holdings Inc (OTCMKTS:KSHB)

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When the problem of over-investment in total cannabis production capacity leads to a plummet in cannabis pricing, investors interested in the cannabis growth theme will be in flight, searching for what one might call the staples of the industry, and the poster boy, at that point, might just be KushCo Holdings Inc (OTCMKTS:KSHB). To add some flesh on the bone, the company recently reported financial results for its fiscal year 2018, for the period ended August 31, 2018.

Nick Kovacevich, Chairman and Chief Executive Officer, commented, “We are exceptionally pleased with the financial results we achieved during the fiscal year with revenues of $52.1 million, representing 177% growth compared to approximately $18.8 million in fiscal 2017. Our strong revenue growth was the result of dramatic growth in our most critical markets, with growing customer numbers, an increasingly diversified offering and expanded facility capabilities. Our growth was further supported by an expanded global presence with recently-opened offices in Canada and China. While we are disappointed with the impact our dramatic growth has had on margins, we believe they are short-term consequences and we’re pleased to have already implemented several initiatives to improve margins on a go-forward basis.”

KushCo Holdings Inc (OTCMKTS:KSHB) is the parent company to a diverse group of business units that are transformative leaders in the cannabis, CBD and other related industries. KushCo Holdings’ subsidiaries and brands provide exceptional customer service, product quality, compliance knowledge and a local presence in serving its diverse customer base.

KushCo Holdings’ brands include Kush Bottles, a dynamic sales platform that is the nation’s largest and most respected distributor of packaging, supplies, and accessories, Kush Energy, which provides ultra-pure hydrocarbon gases and solvents to the cannabis and CBD sector, Hybrid Creative, a premier creative design agency for cannabis and non-cannabis ventures, and Koleto Packaging Solutions, the research and development arm driving intellectual property development and acquisitions.

Founded in 2010, KushCo Holdings has now sold more than 1 billion units and regularly services more than 5,000 legally operated medical and adult-use dispensaries, growers, and producers across North America, South America, and Europe. KushCo Holdings subsidiaries maintain facilities in the five largest U.S. cannabis markets as well as having a local sales presence in every major U.S. cannabis market.

According to its materials, “KushCo Holdings, strives to be the industry leader for responsible and compliant products and services in the legal cannabis and CBD industry. The Company has been featured in media nationwide, including CNBC, Los Angeles Times, TheStreet.com, Entrepreneur, and business magazine Inc.  While KushCo Holdings services all facets of the cannabis and CBD industries, it has no direct involvement with the cannabis plant or any products that contain THC or CBD.”

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As noted above, KSHB just announced revenue was up 177% year-over-year to $52.1 million, gross margins were 24.2%, compared with 35.2% in the prior year period (primarily related to the year-end inventory adjustments of $2.8 million, and excluding this year-end adjustment, gross margins for the year would have been 30%), and net loss, including $1 million in depreciation expense, $23.9 million in SG&A, and $1.6 million in provisions for income tax, was approximately $10.2 million compared to net income of $69,000 in fiscal 2017.

We’ve witnessed 8% tacked on to share pricing for the listing in the past week. What’s more, the name has seen interest climb, with an increase in recent trading volume of 15% above the average volume levels in play in this stock over the longer term.

“As the industry continues to develop, we have transformed our business model, now operating a diverse group of business units that are transformative leaders across several categories. Our dramatic expansion of services has enabled us to enter new markets and reach a wider customer base. This drove a number of positive trends within the business in 2018, including strong growth in customer numbers, increased spending per customer, increased product consumption and the continued investment in geographic expansion and broader product offerings. To support this growth, we have implemented several initiatives designed to improve efficiencies and to establish, build and refine stronger, scalable and sustainable processes. These steps are expected to set us up to continue to effectively capitalize on the continued growth of the industry, and we hope to achieve between $110 million and $120 million in topline revenue during fiscal year 2019,” concluded Mr. Kovacevich.

Earning a current market cap value of $451.52M, KSHB has a significant war chest ($13.5M) of cash on the books, which must be weighed relative to about $7.3M in total current liabilities. KSHB is pulling in trailing 12-month revenues of $52.1M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 131.1%. As more color becomes clear on the name, we will review the situation and update our take. Sign-up for continuing coverage on shares of $KSHB stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $KSHB, either long or short, and we have not been compensated for this article.

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