Steep Discount on Shares of KushCo Holdings Inc After Recent Plunge
There’s one thing the cannabis stock sell-off has accomplished: it has put excellent pot stocks like KushCo Holdings Inc (OTCMKTS:KSHB) in an excellent trading range. In fact, Wall Street believes KSHB stock could double from its current level.
As per usual, though, Wall Street is always a little too conservative. A more aggressive price forecast for KushCo stock would see it hit $12.50 over the next 12 months, a gain of approximately 230% from its current price.
Why the enthusiasm for KushCo Holdings Inc? The company recently reported record second-quarter revenue and significantly improved margins.
KushCo also recently announced a new “Retail Services” division, to connect cannabidiol (CBD) networks to national retail chains. It has also announced new partnerships, including one aimed at expanding retail opportunities for CBD. (Source: “Kushco Holdings Launches New Division to Connect CBD Network to National Retail Chains,” KushCo Holdings Inc, August 6, 2019.)
In June, the Garden Grove, California-based company opened a new 40,000-square-foot distribution facility in Taylor, Michigan to help support the company’s growing operations across the Midwest. (Source: “Kushco Holdings Opens Distribution Facility in Michigan to Meet Rapidly Growing Demand Across the Midwest Region,” KushCo Holdings Inc, June 27, 2019.)
This area includes Illinois and Michigan, two states that recently legalized recreational cannabis. From the first to the second quarter of 2019, the company’s revenue growth in Michigan soared 215%.
In July, KushCo Holdings Inc filed an application to list its stock on the Nasdaq. If approved, this would significantly increase the company’s profile, liquidity, and shareholder value. (Source: “Kushco Holdings Announces Filing of Application to List on the Nasdaq Global Select Market,” KushCo Holdings Inc, July 8, 2019.)
Wall Street may be optimistic about KushCo Holdings Inc’s outlook, but I am even more optimistic.
KSHB Stock Overview
KushCo Holdings helps cannabis brands get noticed, despite governments’ best efforts. The company is a leading provider of ancillary products and services to the cannabis industry. (Source: “Who We Are,” KushCo Holdings Inc, last accessed August 28, 2019.)
This means the company provides things like packaging, supplies, equipment, and accessories. What the company does not do is actually grow cannabis or make any products that contain tetrahydrocannabinol (THC) or CBD.
The company’s brands include Kush Supply Co., the country’s largest manufacturer of vape products, packaging, supplies, and accessories. Kush Energy provides hydrocarbon gases and solvents to the marijuana industry. Koleto Innovations is KushCo’s research and development arm. Meanwhile, The Hybrid Creative is a design agency for cannabis companies and other clients.
KushCo has facilities in the five biggest pot markets in the U.S. and has a sales presence in every major pot market in the U.S. and Canada.
To date, the company has sold more than one billion units and it serves more than 6,000 medical and recreational growers, processors, and producers in North America, South America, and Europe.
As a packaging and container company, this makes KushCo perfect for investors who don’t want to invest directly in the cannabis industry.
|KSHB Stock Information|
|Market Cap||$342.5 Million|
|Shares Outstanding:||88.0 Million|
|50-Day Moving Average:||$4.45|
|200-Day Moving Average:||$5.07|
(Source: “KushCo Holdings, Inc. (KSHB),” Yahoo! Finance, last accessed August 29, 2019.)
KushCo stock entered 2019 energized by the enthusiasm surrounding the legal marijuana industry. After some short-term profit-taking, it traded in a somewhat tight range until the industry experienced a sell-off that ramped up in August.
Over the last number of months, jittery investors have indiscriminately sent almost every pot stock tumbling. There’s no silver lining for investors who held on. But for those looking for bargains now that valuations have righted themselves a little, KSHB stock is trading in an excellent range.
Chart courtesy of StockCharts.com
Record Q3 Revenue Growth
On July 9, KushCo Holdings Inc announced that revenue for its third quarter (ended May 31, 2019) increased 221% year-over-year to a record $41.5 million. Its revenue was up by almost 18% on a sequential basis. (Source: “KushCo Holdings Reported Third Fiscal Quarter 2019 Results,” KushCo Holdings Inc, July 9, 2019.)
The company reported a generally accepted accounting principles (GAAP) net loss of about $10.6 million ($0.12 per share), versus $9.2 million ($0.14 per share) in the same prior-year period. The non-GAPP net loss for the third quarter of 2019 was $8.6 million, compared to $22.6 million in the same period last year.
KushCo ended the third quarter with $12.2 million in cash, compared to $13.5 million on August 31, 2018.
Chairman and CEO Nick Kovacevich noted that, in addition to record revenue growth in the third quarter, the company’s gross margins rose by about 490bps quarter over quarter.
“We remain committed to investing in the expansion of the business through initiatives targeting high-demand, high-margin opportunities that will facilitate increased cross-selling throughout our robust customer base, said Kovacevich.
Partnerships will help us achieve those revenue and margin goals, including our recently announced deal with CA Fortune, which opens an entirely new vertical that will facilitate access to a distribution network unlike anything ever experienced by the cannabis and hemp industries before.
Also in the quarter, KushCo Holdings Inc launched the first biodegradable packaging, secured $21.3 million in senior unsecured notes, and signed an exclusive development and distribution agreement to produce a portfolio of biodegradable and compostable plastics.
Subsequent to the end of the third quarter, the company announced that it secured a $50.0-million credit line. (Source: “Kushco Holdings Secures $50 Million Credit Facility From Monroe Capital LLC, KushCo Holdings Inc, August 22, 2019.)
The money, which was supplied by Chicago-based Monroe Capital LLC, consists of a $35.0-million revolving line of credit that can be increased by $15.0 million. The cash will be used for working capital and potential acquisitions.
KushCo stock has taken a beating over the last few months, but the company continues to have excellent short- and long-term growth potential.
As the company grows, so too does its need for increased cash. KushCo expects that the demand for its core products will increase as the cannabis and hemp industry expands and matures.
KushCo’s customer base is gaining strength, with some of the biggest multi-state operators in the U.S. and licensed producers in Canada as clients. The company is also looking for new growth opportunities in emerging areas.
Listing on the Nasdaq is also expected to help KushCo attract new institutional money.
All of that should help juice the KHSB stock price over the coming quarters.