Our KushCo Stock Prediction in 2019 (Buy or Sell?)
At first glance, cannabis company KushCo Holdings (OTC: KSHB) is a pleasant surprise.
KushCo appears to be a real business, with growing revenue, and isn’t a penny stock. These qualities help distinguish the company from many marijuana stocks, which are shaky ventures built on hype.
KushCo also made a few strategic acquisitions, has cash in the bank, and a shot at outsized growth. But will the company fall by the wayside in the marijuana shake-out to come?
Let’s take a close look at the upsides and downsides of KushCo, and see what 2019 might bring for its stock.
What Is KushCo?
To make a KSHB stock prediction, we first must understand what this company does.
KushCo sells packaging products, vaporizers, hydrocarbon gases, solvents, and accessories to customers in the medical and recreational cannabis industries. The company provides custom branding on bottles, bags, tubes, and containers.
KushCo also sells vaporizer cartridges, custom blends, and solvents for vaping. The company so far has sold a billion units of its products and services 5,000 dispensaries.
How Has KushCo Stock Performed?
- Over the past year, KSHB shares have fallen 15% whereas the S&P 500 has lost 6%.
- Over the past two years, KSHB shares have gained 96% whereas the S&P 500 has gained 16%.
- Over the past three years, KSHB shares have gained 171% and the S&P 500 has gained 39%.
How Has KushCo Stock Performed in 2017/2018?
- In 2017, KushCo shares gained 25% whereas the S&P 500 gained 19%.
- In 2018, KushCo shares fell 15% whereas the S&P 500 lost 6%.
Who Are KushCo’s Rivals?
To fully assess KSHB’s prospects, we must look at its competitors.
Cannabis Sativa (OTC: CBDS)
Cannabis Sativa, a $74 million market cap firm, is a consumer end-user company, although it is much further behind KushCo. Its products are fairly diverse, but it really hasn’t scaled much.
Cannabis Sativa’s main products include recover, a pain relief balm; trauma cream, a THC and cannabinoid infused cream; face garden, a moisturizing facial cream; body garden, a moisturizing body cream; and lip garden, a balm for the lips.
The firm’s iBudtender is an informational website with reviews of marijuana brands, dispensaries, concentrates, edibles, and other products. PrestoCorp is a video conference platform that allows people to speak to a doctor about medical marijuana.
Hemp (OTC: HEMP)
Hemp, a $22 million market cap firm, is more of a laterally related business, with end-user products in industrial hemp processing.
DrillWall is a product used in gas and oil drilling that is insoluble in water, non-toxic, and biodegradable. It’s a combination of organic cellulose fibers that prevents loss circulation, which occurs when drilling fluid leaks out of the ground instead of going back up for re-criculation.
Spill-Be-Gone is made from hemp plants and used for emergency oil spill cleanup and automotive repair.
The company doesn’t generate much revenue. Even worse, its last official filing was in mid-2017, which showed only $21,549 in sales for Q2 and a loss of more than $1 million.
Scotts Miracle-Gro (NYSE: SMG)
KushCo could find itself invariably facing down competition from the biggest company in the cannabis-related sector: Scotts Miracle-Grow. This $3.8 billion market cap firm is famous for its lawn care products. Scotts jumped into the cannabis world with its Hawthorne Gardening Company a few years ago.
Scotts offers products that include hydroponics, plant cultivation, plant nutrients, and horticultural products through its Vermicrop Organics brand.
SMG also offers specialized lighting products through its Gavita Horticultural Lighting and Agrolux brands, and also sells filters, fans and accessories.
Will KushCo Stock Go Up in 2019 (Should You Buy?)
KushCo has carved out a niche in the wholesale distribution of packaging supplies and customized branding products. The company took the approach of rolling up other companies as opposed to developing most of the products itself.
KushCo has differentiated itself from competitors, with a physical presence in five states. The company provides a breakdown of how many customers exist in each revenue bracket, and we were impressed to see it has 546 customers that have purchased between $10,000 and $50,000 worth of product. It even has 14 customers that have purchased more than $500,000 worth of product.
The company’s 2018 revenue was $52 million. SG&A expenses cracked $24 million, though, and when coupled with cost of goods sold, the company is still generating a $12.3 million loss. That being said, it did generate a $380,000 profit on $19 million in revenue in FY17.
KushCo currently has $3 million of cash on hand and $10.3 million in receivables, offset by $7.5 million in account payables, and an outstanding balance of $6.7 million on its line of credit.
If you back out goodwill of $50 million, the company actually has equity of $28 million.
KushCo’s market cap is $567 million, which is about 10.5x revenue and 20x net equity. That’s high. However, unlike many other marijuana stocks, KushCo has a genuine shot at being profitable.
KushCo delivered $25.3 million in revenue in the last quarter, although the company continues to struggle to break even.
KushCo has scaled to the point where it’s improving margins by fortifying its supply chain, upgrading producers to support higher volumes, enhancing operational processes, and improving inventory accuracy. The company also is moving towards higher margin products.
Here’s a video that provides more positive details about KushCo:
Will KushCo Go Down in 2019 (Should You Sell?)
Before you get too excited ahout KSHB, we need to bring you back down to earth. While the company has a lot of things going for it, let’s remember that shares are pricey and the bottom line is in rough shape.
The company was founded in 2010 and yet, after nine years, it rarely breaks even. While the trend of marijuana legalization is certainly beneficial to the company, it remains to be seen if the company will be able to fully execute.
Were this a stock in any other sector, we would immediately move on. But this isn’t any other sector; it’s cannabis. But we do have to consider whether KSHB is appropriately priced even for this rapidly expanding sector.
Overall KushCo Forecast and Prediction for 2019
We expect the marijuana sector to consolidate during 2019 as the hype wears off. But if KushCo continues to substantially grow revenue, we believe that it will have some armor against a sector meltdown.
Over the past year, the stock has fluctuated between $3.76 and $8.30 per share. KSHB currently hovers at $7.01, near the top of its trading range. We would not be surprised to see it advance as much as 10% to around $7.70, but we also think it will trade down as low as $4.00.
The trick, if you are an aggressive trader, is to figure out which happens first. If the stock drops to $4.00, speculators may want to consider buying KushCo for the long term.