It should be noted that KushCo Holdings Inc (OTCMKTS:KSHB) just announced that it has entered into a definitive agreement with the holder of its senior unsecured note to convert 18.5%, or $5 million, of the total principal amount of $27 million due April 2021 under the Note at a 15% discount to the closing price of KushCo’s common stock as of June 9, 2020, which is equivalent to a conversion price of approximately $0.94 per share without any cash consideration.
According to the release, effectively, the Company is issuing approximately 5.3 million shares of common stock (or roughly 4% of its approximately 120 million total shares outstanding) to reduce 18.5% of its total outstanding debt. The transaction is expected to close on or about June 10, 2020, subject to customary closing conditions.
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 the holder of its senior unsecured note to convert 18.5%, or $5 million, of the total principal amount of $27 million due April 2021 under the Note at a 15% discount to the closing price of KushCo’s common stock as of June 9, 2020, which is equivalent to a conversion price of approximately $0.94 per share without any cash consideration.
The stock has suffered a bit of late, with shares of KSHB taking a hit in recent action, down about -17% over the past week. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -37%. What’s more, the name has benefitted from a jump in recent trading volume to the tune of 11% beyond its prior sustained average level.
“Along with right-sizing the business and executing a comprehensive cost-cutting initiative, this transaction represents another important step we have taken in recent months to enhance our financial position and liquidity,” said Stephen Christoffersen, KushCo’s Chief Financial Officer. “Addressing our debt has been a top priority for the Company, and we are encouraged to have proactively and prudently addressed a considerable portion of our outstanding indebtedness under the Note under favorable terms with limited dilution and no warrants, even though the principal amount is not set to mature until April 2021. We believe that not only does the transaction strengthen our balance sheet, increase our net cash, and enhance our financial flexibility, but it also alleviates the need to raise additional equity capital in the near future, which has been a central focus of ours as we work to become more self-reliant on our operations and cash flow to support the growth of the business moving forward. Just as importantly, we believe the transaction speaks to our lender’s confidence in the long-term potential of our equity, our strategic vision and execution, and our ability to achieve positive adjusted EBITDA and cash flow from operations in the near future. Overall, we are pleased to have negotiated this transaction at a time that we believe is more beneficial for the Company and from a relative position of strength, as our cash burn and working capital begin to show significant improvement, positioning us to better serve our customers in a more sustainable and scalable manner.”
Earning a current market cap value of $94M, KSHB has a significant war chest ($11.4M) of cash on the books, which must be weighed relative to about $20.5M in total current liabilities. KSHB is pulling in trailing 12-month revenues of $153.6M. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -14.3%. This is an exciting story, and we look forward to a follow-up chapter as events 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.