KushCo has positioned itself as a premier ‘picks and shovels’ provider of cannabis and CBD-related ancillary products

• Long-term relationship with industry leaders
• Has sold more than 1 billion of its products 
• Transitioning to positive cash flow  

What KushCo Holdings does:

North America’s burgeoning cannabis sector has sparked rapid growth for California-based KushCo Holdings Inc (OTCQX:KSHB), which has established itself as a premier provider of ancillary products and services to the global cannabis and CBD industries.

The company has been operating for more than 10 years, selling more than one billion units to growers, processors, producers, and brands across North America, South America, and Europe.

KushCo’s products and services include: 

• Vaporizer hardware and technology (about 60% of the company’s revenue), producing cartridges, pod systems and batteries with a variety of core materials and heating technologies  
• Packaging, papers and supplies (about 30% of the company’s revenue), which encompasses manufacturing child-resistant compatible, fully customizable and CBD packaging plus compliant labels and processing supplies  
• Energy and natural products (approximately 10% of the company’s revenue), which includes cannabis and CBD-based hydrocarbons, solvents and food-safe oils as well as investments in stainless steel storage tanks
• CBD services, such as retail execution, merchandising, and sales management for compliant hemp-derived CBD products, along with hemp trading solutions for growers and processors
• Equipment financing through the company’s strategic partnership with XS Financial, in which KushCo owns an approximate 19.5% equity stake

KushCo Holdings is led by CEO Nick Kovacevich, a serial entrepreneur with success launching BigRentz, Alpha West Holdings, and KushCo, each having generated more than $50 million in annual revenue.

How is it doing:

In July, KushCo reported third-quarter 2021 revenue of $28.3 million, a 27% year-over-year increase, boosted primarily by an increase in sales to the company’s top 25 customers that included leading multi-state operators (MSOs), licensed producers (LPs), and brands.

KushCo also realized an improvement in its quarterly adjusted EBITDA with a loss of $1.1 million in 3Q, compared with a deficit of about $2.7 million during the same period last year, mainly as a result of higher revenue and company-wide cost reductions.

The company noted that its cash selling, general and administrative expense (SG&A) for the quarter was $7.1 million, which it said was one of the lowest levels in recent quarters as it continues to “operate with fiscal prudence.”

KushCo ended the quarter with about $1.1 million in cash as of May 31, 2021, after paying off its $17 million term debt and the existing balance on its revolving line of credit.

At the end of 3Q, the company had $0.7 million of total debt outstanding.

Meanwhile in April, the company said it secured a long-term supply contract with a leading West Coast operator during the quarter and was awarded 38 supply contracts for its stainless steel tanks.

Earlier, KushCo announced it had agreed to merge with Greenlane Holdings Inc (NASDAQ:GNLN), which the companies said will result in $15 million to $20 million of annual run-rate cost synergies within two years.

The combined company is expected to have pro forma revenue of more than $250 million for 2021 and a pro forma market capitalization in excess of $350 million based on the respective share prices of Greenlane and KushCo as of March 30. Following the merger, the entity is expected to generate pro forma revenue of between $310 million and $330 million for 2021.

Under the terms of the merger agreement, KushCo shareholders will receive roughly 0.25 shares of Greenlane Class A common stock for each share of KushCo share held. KushCo will become a wholly-owned subsidiary of Greenlane once the merger closes.

Following the merger, current KushCo CEO Nick Kovacevich will lead the combined company as chief executive officer, while Greenlane co-founder Aaron LoCascio will serve as president and Greenlane’s Bill Mote and Adam Schoenfeld will become the chief financial officer and chief strategy officer, respectively.    

What the broker says:

In a note to clients on July 9, analysts at Roth Capital Partners maintained their ‘Buy’ rating and 12-month target price of $2 on shares of KushCo, even as the company reported an approximate 14% quarter-over-quarter decline in its third-quarter 2021 revenue on weakness in the energy and natural product division as well as ongoing supply chain disruptions.

“While KSHB reported a relatively soft quarter on lumpy reordering cadence and continuing to work through higher-cost inventory, we still believe the catalysts which led to the pending merger with Greenlane Holdings Inc (NASDAQ:GNLN) are still in place,” the analysts said.

“We expect synergies to come from the merger with Greenlane, which should bolster its proprietary packaging business and as it continues to look for cost savings initiatives with vendors/inventory management.”

The Roth Capital analysts added that scaling the combined operation through a consolidated footprint and cross-selling branded GNLN products into KSHB’s top multi-state operators (MSO), licensed producers (LP), and brands customer base should realize a more robust financial profile and improved margins.

They believe the merged entity should be able to reach margins in the mid-20% range by early calendar year 2022. 

Inflection points:

• Pending merger with Greenlane Holdings 
• Fiscal 2021 pro forma revenue of between $310 million and $330 million expected 
• Anticipating pro forma adjusted EBITDA to climb to $14.2 million by 2022 

What the boss says:

Commenting on the company’s preliminary third quarter 2021 revenue, KushCo Holdings CEO Nick Kovacevich said in a statement: “Not only are our sales to these customers continuing to grow, but the quality of the customers we are serving is also continuing to improve, as we have a much stronger book of the right customers than we did a year ago.”

Kovacevich added: “We have spent the last three years cultivating this elite customer base, and we are even more excited by the prospect of cross-selling these customers and others with proprietary owned products, as we move closer toward the consummation of our merger with Greenlane.”

Contact Sean at [email protected]

Story by ProactiveInvestors