California-based KushCo Holdings, a marijuana company that focuses on providing packaging, marketing, and other auxiliary services to the cannabis industry at large, finalized a $34 million stock funding round through a direct public offering. Like many other companies in the sector which are seeking additional funding to help expand and not fall behind the rest of the competition which is doing the same, this announcement from KushCo comes on the heels of an earlier direct offering last June.
KushCo plans to use the newly raised funds to help invest in new technology as well as facilitate their ongoing growth needs. In total, 6.5 million shares of common stock were issued with warrants to buy around 3.2 million shares at a price of $5.25 per share. The warrants are exercisable immediately and will expire within five years of when they are issued.
“We continue to be very pleased with our rapid revenue growth and significant customer expansion, as evidenced by our recently announced long-term supply arrangements-in-principle totaling $75 million. We believe this recent capital raise will continue to allow us to appropriately fund our working capital needs and fuel our continued sales trajectory and meet our growing customer demand,” said KushCo CEO Nick Kovacevich. “The cash proceeds will also support our current investment in our technology platforms leading to improved supply chain efficiencies. As we progress through fiscal 2019, we remain acutely focused on building out a scalable, sustainable business, executing on our cross-selling strategy and being a first-mover in new domestic and international markets.”
When the DPO was first announced last week, shares plunged around 15.1 percent in response to the announcement. At the same time, the company entered in various long-term supply contracts which were estimated at being worth over $75 million over the next three years. While the new funding is seen as a positive thing for KushCo’s management team, the same cannot be said for the shareholders, who see the company’s stock being further diluted. At the same time, the DPO – which is at a discount in comparison to market prices – could be indicative of poor institutional demand.
On a previous earnings call, KushCo discussed different options for raising capital, admitting that cash was a lower then they’d like to see. “Obviously as we continue to grow, working capital is going to be a challenge,” said the management team, adding that “but ultimately we may have to use some equity financing to continue to bridge the gap on the working capital scenario. It’s just the reality of the situation. What we don’t want to do is slow down the growth.”
While some analysts and shareholders worry over what seems to be an excessive reliance on equity financing, KushCo’s business model of being a “pick-and-shovel” provider in the cannabis sector makes it a less risky business than others in the sector.
KushCo Holdings Inc Company Profile
KushCo Holdings, Inc. (OTCQB: KSHB) is the parent company to a diverse group of business units that are transformative leaders across several industries. KushCo Holdings’ subsidiaries and brands provide exceptional customer service, product quality, compliancy knowledge and a local presence in serving its diverse customer base. KushCo Holdings’ brands include Kush Supply Co., a dynamic sales platform that is the nation’s largest and most respected distributor of packaging, supplies, and accessories to the cannabis and CBD industry, Kush Energy, which provides ultra-pure hydrocarbon gases and solvents, Hybrid Creative, a premier creative design agency for clients across several industries, and Koleto Packaging Solutions, the research and development arm driving intellectual property development and acquisitions. – KushCo