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KushCo Holdings Reported Lower Q3 Results, Stock Rose 10%

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KushCo Holdings reported another quarter of disappointing earnings results. The company’s revenue for the third quarter of fiscal 2020 missed analysts’ estimates by a huge margin to $22.3 million and declined YoY (year-over-year). The company also reported an EBIDTA loss in the quarter. 

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However, the EBITDA improved from the third quarter of 2019 due to cost-reduction strategies. KushCo’s shares closed 10% higher on Wednesday in the OTC (over-the-counter) markets. Amid the company’s disappointing results, most US cannabis companies have reported tremendous results. 

KushCo Holdings’ revenue declined in Q3

KushCo Holdings’ third-quarter net revenue was $22.3 million, which was much lower than analysts’ estimate of $31.1 million. The revenue also decreased by 46% YoY. The company mentioned that its 2020 plan consisted of tighter credit terms for smaller customers. Tighter credit terms were one of the reasons for the lower revenue. Lower sales from vape and natural products and the effect on larger orders amid COVID-19 were also responsible for the revenue decline.

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The company reported an adjusted EBITDA loss of $2.7 million. However, the EBITDA loss improved from a loss of $7.5 million in the third quarter of 2019 and a loss of $14.8 million in the second quarter fiscal 2020. KushCo adopted various cost-cutting measures, which contributed to the lower losses this quarter. 

The COVID-19 pandemic led to reductions in the headcount, executive salaries, consulting spend, and travel and entertainment expenses. The SG&A expenses fell to $12.7 million compared to $20.7 million in the third quarter of 2019. The SG&A expenses also declined from $27.2 million in the second quarter of 2020. 

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Talking about the third-quarter results, Nick Kovacevich, KushCo’s co-founder, chairman, and CEO, said, “Q3 2020 was a successful transition quarter for KushCo, demonstrating the execution of our strategy to accelerate our path to positive adjusted EBITDA. We substantially reduced our cost structure, consolidated our vendors and warehouses, vastly improved our inventory to align with our actual sales, ramped up our collections activity, stemmed the cash burn, and drove meaningful operating leverage.”

What to expect in the fourth quarter

Management stated that they have been working to achieve good revenue growth in the fourth quarter. Their main focus will be on their “core businesses of vape, packaging, and energy.” KushCo will also be working on its capital allocation policy to reduce costs going forward. The company expects to hit a positive adjusted EBITDA by the fourth quarter. KushCo ended the quarter with around $11.1 million in cash.

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KushCo expects the net revenue to be $24.0 million–$26.0 million in the fourth quarter. The company expects its SG&A expenses to be $6.5 million–$7.5 million. The adjusted EBITDA could be between a loss of $1.0 million and a profit of $1.0 million. 

KushCo and peers’ stock performance

While KushCo has been struggling to hit a positive EBITDA, other US cannabis peers achieved it in their recent quarter. Green Thumb and Curaleaf Holdings (OTCMKTS:CURLF) want to expand in 2020. Recently, Curaleaf announced the completion of the Curaleaf NJ acquisitionAcreage Holdings’ recent quarterly results were also disappointing. 

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Meanwhile, Aurora Cannabis (NYSE:ACB) hired a new chief commercial officer. Constellation Brands booked losses in its recent quarter, while Canopy Growth (NYSE:CGC)(TSE:WEED) has the potential to grow. OrganiGram (NASDAQ:OGI) had to lay off 220 employees to conserve cash, while Innovative Industrial Properties had to raise more cash for expansion. 

So far in July, Aurora Cannabis, OrganiGram, Acreage Holdings, and Curaleaf stocks have fallen by 2.0%, 1.2%, 3.4%, and 7.1%. Meanwhile, Canopy Growth, KushCo, Green Thumb, and Innovative Industrial Properties have gained 1.0%, 6.3%, 1.2%, and 4.4.%, respectively.

To learn more, read What to Expect from Marijuana Stocks in July.

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