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KushCo Holdings Inc. (OTCMKTS:KSHB) Shares Slump On Accounting Mishaps

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On April 9th, KushCo Holdings Inc. (OTCMKTS:KSHB) reported that there were accounting errors in its statement and they would wish to restate financials for fiscal 2017 and 2018.

Since the beginning of 2019 Kushco Holdings’ stock has gained 12% but, after digesting this mishap, investor sentiment has soured a bit.

These kind mistakes do not bolster investor confidence, but KushCo Holdings believes the hiring of a new CFO in 2018 could help in ensuring the financials are compliant with Sarbanes-Oxley.

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KushCo Holdings revenue continues to soar

KushCo Holdings supplies over 5,000 growers with packaging bottles as well as material for edibles and vapes. In fiscal 2018 the company’s revenue grew by 177% to approximately $52 million and so far in Q1 2019, Kushco Holdings has seen a 186% increase in year-over-year revenue to around $25 million. The company has projected that its revenue is likely to double in FY2019.

KushCo Holdings’s growth is not solely from packaging – last year the company acquired various businesses that offer marketing solutions as well as products used in the extraction of cannabinoids from hemp and marijuana.  KSHB has increasingly become diversified in its offerings which makes it an important vendor.

Profit margins dropped as a result of growing expenses

Growing demand has put pressure on the company’s inventory and production resulting in supply shortages that have increased expenses. To meet growing demand Kushco Holdings has invested in new facilities and incurred extra shipping expenses resulting in a 12.8% drop in profit margins in Q1 2019.

Before appointing a CFO, KushCo Holdings’s financials were handled by the COO and this might have contributed to the accounting mishaps reported. Correcting the errors in the financial statements will result in the company’s losses to widen from $10.2 million to $24.3 million for FY208 while net income for FY 2017 will increase to $1.7 million from $0.1 million.

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

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