KushCo Targets The Big Customers For Future Growth

KushCo Holdings, Inc. (OTCQX: KSHB) announced its financial results for the third quarter ending on May 31, 2019, after the market closed on Tuesday. Net revenue was $41.5 million, representing a quarter-over-quarter increase of 17.9%.On a GAAP basis, gross profit was 17.8%. On a GAAP basis, the net loss was $10.6 million, up from $9.2 million in the same period of the previous year. Cash on hand is approximately $12.2 million.  During its earnings conference call, the company noted that big customers would be the focus.

“We’re getting more customers into these buckets spending over $10,000 or more with us in the last 12 months, and in the large buckets, the $500,000 to $1 million we saw an increase of seven customers from fiscal ’18 when we look at the last four quarters,” said KushCo Chairman and CEO Nick Kovacevich on the company’s earnings conference call. “And in the $1 million-plus bucket we see an increase from four customers in fiscal ’18, to now 13 customers when we look at the last four quarters. And so what this is telling us is that there’s bigger customers now that we’re going after, the MSOs and Canadian LPs, and that these customers are spending more money with Kush, and they’re able to get more products because our offering has expanded, and if you look at the average number of SKUs that these customers are purchasing, we see these metrics going in the right direction as well. And now customers that are spending $500,000 to $1 million with us in the last 12 months are buying on average 56 SKUs, and customers in that $1 million-plus bucket are buying a tremendous 73 SKUs from us on average.”

Kovacevich also announced on the call a partnership with C.A. Fortune, which is one of the leading consumer product sales and marketing agencies that work with large retailers, specifically in the grocery category. “We obviously have a great network of brands and with the passage of the Farm Bill it presents a huge opportunity for us to take our CBD brands that we work with and give them the opportunity to get placement into these large retail outlets. We see this as a very high-margin and high-value initiative, because not only are we solving a problem for our customer by allowing them to build their brand nationally, but we’re also solving the problem for these national retail chains who want to get into the CBD and hemp space very badly, but don’t necessarily know who the brands are that they should be carrying,” he said.

KushCo Holdings, Canaccord Genuity cannabis analyst Bobby Burleson said, “KSHB appears positioned to deliver revenues toward the upper end of the guided range for F19 (guidance for $140M to $150M), based on strength in mature and emerging states. We believe continuing improvement for gross margin and a looming Nasdaq up-list will act as positive catalysts for the shares over coming months. Notably, the company is leveraging its growing scale to secure better pricing from suppliers and terms with customers. Cross-selling efforts continue to bear fruit, and while vape hardware looks to remain a sizable portion of overall revenues, the mix is improving outside of the vape category as custom products and energy solutions gain ground.”

He added, “In our view, hemp CBD could drive longer-term upside following a recent partnership with CA Fortune that opens mainstream retail channels. Although too early to quantify, management is considering breaking out CBD revenue in the future. We are increasing our estimates and reiterate a Spec Buy rating. Price target remains $7.50.”

KushCo reiterated its fiscal 2019 revenue guidance, targeting in on the high side of its range of $145 million to $150 million for the fiscal year ending at the end of August. KushCo also said that it plans to offer financing in the future to its customers who may need help buying expensive extracting equipment.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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