KushCo Holdings Inc.

KushCo Holdings Inc.(OTCQX: KSHB): The Shift in Sales Distribution

Image Source: KushCo Holdings Inc.
" KushCo reported fiscal 2020 Q1 results, which shows a 38% increase in net revenue to $35 million from the prior-year quarter. "

Highlights

  • KushCo reported fiscal 2020 Q1 results, which shows a 38% increase in net revenue to $35 million from the prior-year quarter.
  • Gross profit margin kept rising up for the fourth consecutive quarter, from 12.8% in the prior-year period to 20.8%.
  • Net loss accounted for approximately $12.5 million, increasing from $8.6 million in the prior-year period.
  • Cost-cutting and restructuring cut down $4.3 million in net annual cost savings.

Introduction

KushCo Holdings Inc. (OTCQX: KSHB) (“KushCo” or the “Company”) is a producer of ancillary products and services in the cannabis and CBD industries. Established in 2010, KushCo is located at Cypress, CA and operates in the United States, Canada, and other countries. KushCo’s prominent brands including Kush Supply Co. that offer cannabis-related products from vaporizer products, packaging, supplies, to accessories, having no direct involvement with the cannabis plant. Their uniqueness in their strategic management process is to build a world-class cannabis company one product, site and country at a time, as a “one-stop-shop” strategy.

Fiscal Q1 2020 Results

KushCo reported net revenue grew to 35 million US dollars, with a year-over-year increase of 38%. Their gross profit margin (GPM) climbed up to 20.8%, compared to 12.8% of the gross profit margin from the prior-year quarter. The boost in their net revenue generated from geographic shipping and sales, operational efficiency, and improved product mix. The company’s sales distribution includes two parts as recreational and medical markets.

Although their sales and revenue may look pretty decent, KushCo suffers from a total of 12.5 million US dollars net loss in their operation. To cope with the substantial operating loss, the company reduced headcount of 53 employees and cut down $4.3 million in net annual cost savings. The reduction of employees, however, may lead to potential risks in slowing production and lowering delivery efficiency.

KushCo-Geographic-Distribution
Source: KushCo SEC Filings

Financial Outlook

Overall, the company’s GPM and net revenue generated from geographic shipping and sales. The sale increase is driven by expansion in the medical states and increasing momentum states including the new entrant, Illinois in the recreational market. Revenue in the medical states incremented 51% quarter-over-quarter, which balanced losses from some states in the recreational market.

Ulteriorly, their sales distribution shifted from the recreational market to medical sales in legalized states. As an ancillary provider, the company’s sales distribution depended mainly on their customer base across the states. Therefore, the shift in their sales distribution indicates the change in the cannabis industry, showing a significant transition from the recreational market to the medical market.

Moreover, the increase in their sales also illustrates an increasing demand in some particular states. Illinois, which officially started the recreational sales on Jan 1st 2020, accounted for 1.8% of KushCo’s revenue in their fiscal first quarter of 2020. It undoubtedly demonstrates a promising market in Illinois, though the sales in Illinois only occupy a relatively small market share at present. Illinois will possibly shift the distribution curve of KushCo’s sales and furthermore, accelerate the recreational sales of other types of businesses in the cannabis industry. Likewise, Florida, Pennsylvania, and Maryland contribute to the substantial growth in the company’s revenue as well. Those states altogether have driven the increase in KushCo’s sales and alleviated losses resulted from the oversupplied market in California.

In brief, the transition in KushCo’s sales distribution epitomizes the shift taking place in the cannabis industry. There will probably emerge more possibilities and opportunities in the medical area of the cannabis industry. In addition, Illinois along with Florida, Pennsylvania, and Maryland would reset the stage for developments in the recreational market. As for KushCo, the company restated their net revenue guidance for fiscal 2020 to be between $230 million and $250 million. From our perspective, we suggest KushCo pays more attention to sales in the medical market, and for the recreational sales, emerging markets like Illinois are supposed to be their major focus in the following quarter.

Source: KushCo Holdings Inc.

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Jay Yang
JayY@Vapebiz.net
Author Bio
Kentucky-based writer and editor focuses on business, finance, and investment in the cannabis industry. Jay made her first foray into the marijuana market through her friends in college, acknowledging medical cannabinoids in the psychotherapeutic area. Although she stayed active constantly during her college years in social activities including feminist movement and climate change, Jay did preserve with interest in marijuana. By exploring the volatility of weed, Jay intends to dig out innovation, technology, and culture in the cannabis landscape.

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