The cannabis market has knocked KSHB stock off its feet this week. KushCo Holdings (OTCQB:KSHB) is down a significant 12.75% at the time of writing.
OK, it's not the only stock in the red—MJardin Group (CSE:MJAR) is down 7.5%, and Terra Tech Inc (OTCQX:TRTC) is down 8%—but KSHB is the biggest loser by a margin. Is this simply market volatility? Or perhaps Kush Bottles' recent results have rocked investors.
Let's take a look!
KSHB Stock
December into January was going so well for KSHB stock. Investors began taking action knowing that KushCo's potential was hot. From mid-December to January 14th the stock grew quickly from $4.50 to over $7.00 USD. Impressive.
But come the start of this week, the shares tanked suddenly, losing over 30% in a 24-hour period. KSHB stock has pared some of those dramatic losses but at its current price of $5.20, has a ways to go climbing back over the $7 mark again.
So what happened?
KushCo Holdings Q1 Report
The company announced its Q1 Report, and while it showcased some positive numbers, it also hit investors hard with a major unfavorable.
KushCo ended the quarter with just $3.03 million in cash, down from $13.47 million in the previous quarter. At that low level, the company is most likely going to have to hunt for more capital.
This is a red flag for investors because KushCo operates in the US and due to federal law won't be able to get loans or investment from financial institutions. The expectation is that KushCo will turn to the secondary market to sell shares and raise capital in that way.
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Now, this tends to work wonders in the marijuana industry, however, it will weigh on the value of existing KSHB stock, and lessen earnings per share for even profitable companies.
For this reason, investors don't like share-based dilution, and even KushCo Holdings isn't immune.
It also didn't help that the company's gross margins came in at 12%, well below the 30% minimum gross margin that CEO Nick Kovacevich targeted. Ouch.
The Bottom Line
As said, there was one major positive in this Q1 report, at the end of the day. KushCo's business of branding and packaging for the cannabis industry is booming. According to TheMotleyFool.com:
"For the quarter, sales grew by 186% from the year-ago quarter to $25.3 million, representing the highest quarterly revenue in history, as well as 26.5% sequential growth from the fiscal fourth quarter."
The company has itself in a niche that is working well. KSHB stock is in a healthy position to heal from this recent sell-off, so it's hard to see this stock staying on the floor.
Featured Image: Twitter
