Why the KushCo Holdings Inc (OTCMKTS:KSHB) Pullback May be a Bear Trap...

Why the KushCo Holdings Inc (OTCMKTS:KSHB) Pullback May be a Bear Trap Opportunity

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Now plagued by new class action activity, shares of KushCo Holdings Inc (OTCMKTS:KSHB) have been sliding in recent action to test the key $5/share level as we enter a fresh week of trading. To further flesh out the action, the company just announced that it has entered into a definitive agreement with an institutional investor for a private placement of a senior unsecured note with an aggregate principal amount of US$21,300,000.

According to the release, “he Offering is expected to close on or about April 30, 2019, subject to customary closing conditions. The Note will be an unsecured senior obligation of the Company. The Note will mature on the 18th month anniversary of the closing date, unless earlier redeemed by the Company. The Note is being issued at an original issue discount and will not bear additional interest (subject to the occurrence of certain events of default).”

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 that it has entered into a definitive agreement with an institutional investor for a private placement of a senior unsecured note with an aggregate principal amount of US$21,300,000.

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action KSHB shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -9% on above-average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. What’s more, the name has seen interest climb, with an increase in recent trading volume of 6% beyond its prior sustained average level.

KushCo’s Chief Executive Officer, Nick Kovacevich, commented, ”We are thrilled to announce this unsecured, non-dilutive financing structure to support our company’s rapid growth. The terms of this note represent a dramatic improvement in our ability to secure financing with a lower cost of capital and is indicative of more attractive financing alternatives within the cannabis industry.”

At this time, carrying a capital value in the market of $438.27M, KSHB has a significant war chest ($17.9M) of cash on the books, which must be weighed relative to about $19.1M in total current liabilities. KSHB is pulling in trailing 12-month revenues of $93.4M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 239.5%. We will update the story again soon as developments transpire. 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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