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by Eric Vengroff, Financial Analyst, Cannabis Daily
Also announces purchase of digital creative agency.
Kush Bottles has been a busy company lately.
SANTA ANA, Calif., July 12, 2018 — Kush Bottles (OTCQB: KSHB), (“Kush Bottles” or the “Company”), a leading provider of packaging, supplies, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions for the regulated cannabis industry, today reported financial results for its third quarter of 2018, for the period ended May 31, 2018.
Fiscal Third Quarter Financial Summary
• Revenue was up 173% Year-over-Year to $12.9 million.
• Gross margins were 28.3%, compared with 35.5% in the prior year period, which is attributed to increased business in the lower margin vaporizer and cartridge product segment(s).
• Net loss, including $258,837 in depreciation and amortization expense, $5.0 million in SG&A and $495,897 in stock compensation expense, was approximately $2.16 million compared to net income of $6,119 in the fiscal third quarter of 2017.
• Cash balance was $3.6 million as of May 31, 2018 compared to $900,000 at August 31, 2017. This increase was primarily a result of a $6.0 million equity investment by the Company’s strategic partner, Merida Capital Partners in February, 2018.
• Working capital was $15.8 million as of May 31, 2018 compared to $3.4 million at August 31, 2017.
• Subsequent to the quarter end, Kush Bottles completed a registered direct offering, generating net proceeds of approximately $32.9 million to the Company.
Earlier in the day the company also announced that it will be changing its name to KushCo Holdings, Inc. The change will become effective at the beginning of the upcoming fiscal year (September 1st, 2018). The new name reflects the Company’s shift to a more diversified business model, which offers a broad range of ancillary products and services to cannabis and CBD businesses, including medical and adult-use dispensaries, growers, and producers in the cannabis industry, as well as targeting pharmaceutical, veterinary and other applicable industries.
The Company’s core B2B sales and distribution arm will continue to operate under the Kush Bottles name. The name change was approved by the Company’s stockholders at the Company’s 2018 annual meeting of stockholders.
The name change is more than cosmetic, as the company is restructuring as well. KushCo Holdings will consist of several business units, including Kush Bottles, Koleto Packaging Solutions and Zack Darling Creative Associates (ZDCA) and its subsidiary, The Hybrid Creative.
Lastly, the company announced it has acquired Zack Darling Creative Associates, LLC (“ZDCA”) along with its wholly-owned subsidiary, The Hybrid Creative, LLC (“Hybrid”), a specialist design agency based in Santa Rosa, California. ZDCA is a full-spectrum digital creative agency, founded in 2009 and based in Santa Rosa, California, considered the gateway to The Emerald Triangle. It serves both traditional industry accounts as well as cannabis companies and currently works with clients across the U.S., Canada and Europe. This acquisition represents an interesting wrinkle in this game, as rather than hunt around for the lowest bidders on advertising and promotion, they have found a company that meets their needs and their going to the dance together. Creative agencies that understand the regulatory and advertising minefield in various jurisdictions will be at a strategic and tactical advantage to their competitors and should be a real benefit to their clients.
On the earnings call, Nick Kovacevich, CEO of Kush Bottles, announced that the company’s sales force has expanded to a complement of 45, which he believes is the largest in the industry.
In every industry there has to be infrastructure -the guys with the brooms cleaning up behind the elephants at the circus. That appears to be the way this company is positioning itself. With product, platforms, systems, and consultancy, they seem well-positioned. Mr. Kovacevich understands and foresees some of the challenges and issues in the Canadian market, from packaging, labeling, etc. and some innovation will be required over time.
Hopefully, they will up-list from the US OTC market to a Canadian exchange rather than dealing with the higher regulatory and capital requirements of a major U.S. exchange.