Marijuana growers win most of investors' attention, but they aren't the only companies enjoying a green rush because of marijuana legalization efforts. Suppliers are also benefiting from increasing demand as sales shift from the shadows to regulated marketplaces.
One of the largest of the marijuana suppliers, KushCo Holdings (NASDAQOTH: KSHB), has enjoyed particularly good growth. Demand for packaging, such as vaporizers, solvents used in extracting chemical cannabinoids, and expansion into new markets has been a boon to its financials.
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On Tuesday, management unveiled its latest quarterly results, including a 221% year-over-year improvement in revenue to $41.5 million. Here's what you should know about this pot stock's progress.
KushCo Holdings results: The raw numbers
| Metric | Fiscal Q3 2019 | Fiscal Q2 2018 | Change |
|---|---|---|---|
| Sales | $41.5 million | $12.9 million | 221% |
| Cost of goods sold | $34.1 million | $9.2 million | 271% |
| Gross profit | $7.4 million | $3.7 million | 100% |
| Gain (loss) from operations | ($16.3 million) | ($9.1 million) | N/A |
| Net income (loss) | ($10.6 million) | ($9.2 million) | N/A |
Data source: KushCo Holdings.
What happened with KushCo this quarter?
KushCo's quarterly sales growth has accelerated in part because of acquisitions. However, the bulk of its top-line expansion is the result of increasing demand in Canada following marijuana's national legalization for recreational use last fall and greater demand in the U.S., where 11 states have legalized recreational use.
In addition to reporting significant sales growth last quarter, the company also:
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Launched a biodegradable packaging solution with SunGrown;
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Finished implementing a warehouse management system;
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Secured $21.3 million in senior unsecured note; and
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Signed a development and distribution agreement with IEKO to make biodegradable and compostable plastics products.
The steps toward environmentally conscious packaging should help differentiate KushCo from other suppliers, helping it to serve more customers. Meanwhile, the additional cash is critical to management moving quickly to keep its fast-growing customers happy.
The company's gross margin has slipped in the past year because of increasing costs associated with tariffs on products it makes in China and air freight costs associated with meeting customers' needs. However, steps to boost production, lower shipping costs, and better manage inventory appear to be kicking in because gross margin jumped 4.9% quarter over quarter to 17.8%. Long term, KushCo's goal is to get back to 30% gross margins and profitability in fiscal 2020.