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KushCo Holding Forays into New Hemp Trading Business

08 Nov KushCo Holding Forays into New Hemp Trading Business

KushCo Holdings (OTCQX: KSHB), a leading player in the Cannabis-based ancillary industry, announced its foray into Hemp Trading, with a focus on acting as a bridge between buyers and sellers of Hemp Commodities. The move is an attempt to expand its CBD footprint by facilitating legally-compliant hemp transactions for in-network, pre-qualified farmers and a pre-qualified buyer network. In addition, the Company seeks to provide quality and transparency in the legal, hemp-derived CBD market and eliminate middlemen and the risks associated with compliance.

To achieve this objective the Company has entered into a partnership agreement with a leader in industrial farming, who will act as the primary supplier with over 1,200 acres of hemp cultivation and more than 60,000 acres available through its network of farmers.

The Company is gearing up to offer comprehensive end-to-end solutions to its strong network of 6000 brands, producers and suppliers such as farmers, operators, extractors, and distributors, right from the farm to the retail store. KushCo will trade in both spot and long-term supply contracts for purchase and sale of legally compliant hemp biomass, crude CBD oil, CBD isolate, and CBD distillate. The biomass will undergo rigorous testing to ensure that it is free from contaminants in the form of cannabinoids, microbials, solvents, pesticides, heavy metals, moisture, mycotoxins, and other chemicals.

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Nick Kovacevich, Co-founder, Chief Executive Officer and Chairman of KushCo commented,

“We recognized early on that the CBD market would be an explosive one that is poised for substantial growth for many years to come, which is why we have been actively positioning our business to capitalize on this opportunity”. He further stated “We believe this crossover between THC and CBD will continue and with our more than 6,000 customers across both industries, are in prime position to take advantage of the convergence between these two markets.”

Furthermore the Company will also provide processing services, ensuring reliable delivery of hydrocarbons and solvents, besides providing full spectrum marketing services ranging from market research to promotional market campaigns. KushCo will also offer assistance with retail placements and sales management.

The hemp trading business is projected to bring in more than $25 million in revenue in fiscal 2020. However the Company will not maintain a direct inventory, but will earn a transaction fee.

Jason Vegotsky, KushCo’s Chief Revenue Officer and President stated,

“With the formation of our hemp trading business, KushCo’s CBD division is now a true seed to sale operation, beginning with the hemp farmers and ending at the retail shelves” 

The partnership creates a national marketplace for hemp, ensuring that a farmers produce has a buyer network readily willing to accept the product, while a buyer finds a reliable and high-quality source of supply.

KushCo Holdings (OTCQX: KSHB)

Market Cap: $146.54M; Current Share Price: 1.64 USDChart
Data by YCharts

The Global legal marijuana market is likely to reach over USD 66.3 billion by the end of 2025, as per a report by Grand View Research, Inc, growing at a CAGR of 23.9%. There is a growing acceptance of the curative effects of cannabis, with some countries such as Canada and certain states of U.S legalizing the use of Marijuana for medical and recreational use. Research has time and again shown that cannabinoids (CBD), extracted from the cannabis plant, have varied medical uses with minimal side effects, making it a sought after alternative to traditional pharmaceutical options.

The U.S, where the use of cannabis has only been legalized in 33 states for medical use and 11 states for recreational use, is one of the largest untapped markets for Cannabis, with an estimated value of over USD 11.9 billion in 2018, which is likely to grow at a CAGR of 24.1% from 2019 to 2025. Currently 33 states in the U.S along with Washington, D.C. have legalized medical marijuana while 10 states (plus D.C.) permit recreational cannabis. 2018 was a great year for CDB industry, not only was the Farm Bill passed that allowed for the sale of hemp and hemp based cannabidiol products, but the FDA also approved its very first cannabis-derived drug Epidiolex for treatment of seizures.

This has proven to be a great opportunity for a number of ancillary industries such as consulting, cultivation, delivery, packaging and branding solutions to establish a strong presence as an indispensable part of the industry. According to estimates by Reports and Data the Global Packaging industry will reach USD 5.20 billion by 2026 growing at a CAGR of 26.4% from 1.39 billion in 2018.

Hemp and Marijuana, though used interchangeably, are distinct strains of the Cannabis sativa plant and have different phytochemical uses and composition. Hemp has very low concentrations of THC and is rich in CBD, which results in very negligible psychoactive effects. Hemp is extensively used in industrial and commercial processes such as paper, textiles, biofuel, animal feed and clothing.

There is a growing demand for CBD derived from Hemp, as it eliminates the negative effects caused due to THC and ensures a safe product. The U.S hemp industry received an impetus, with the passing of the Agriculture Improvement Act of 2018. The bill made a clear demarcation between marijuana and hemp, essentially making the sale of hemp legal, thereby boosting the sale of hemp-derived cannabidiol (CBD) products.

According to a report by Grand View Research, the global industrial hemp market is expected to reach $10.6 billion by 2025.

KushCo operates numerous ancillary businesses in the CBD industry, which offer exceptional products and services to their diverse customer base. The Company’s subsidiaries include Kush Supply Co, a producer of premium quality vaporizer products, packaging, supplies, and accessories; Kush Energy, which offers ultra-pure hydrocarbon gases and solvents to the cannabis sector; The Hybrid Creative, the design wing of the Company which offers creative branding and promotional solutions and Koleto Innovation that handles research and development and intellectual property development and acquisitions of the Company.

The Company’s subsidiary Kush Bottles, develops and sells novel packaging solutions for the Cannabis Industry such as consumer cyclical, packaging and containers. KushCo is the leading supplier of sustainable packaging that conforms to market and government regulations. It has over 1500+ stock keeping units and produces labels and processing supplies that are complaint with local laws and regulations.

The Company also manufactures vaporizer hardware and technology and is one of the four CCELL distributors in the U.S. Their products use the CCELL vaporizer, which is based on a revolutionary heating element that can replace traditional cotton fiber with porous ceramic. It offers an array of cartridges and batteries with numerous options for core materials and heating technologies.

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KushCO offers a wide variety of child resistant custom branding solutions under brand names such as DymaPak, Grip N Glide, Kush N Slide, Palm N Turn, Stock and Wallee. Futurola, Bic and Budgloves are its range of pre-roll papers, handling and display jars. In addition the Company also manufactures Vape Packaging, along with supplying pure hydrocarbon and solvents such as isobutene, n-butane, propane and ethanol for producing high quality concentrates.

Furthermore the Company offers customized branding solution to players in the Cannabis market and has over 10,000 businesses as its clientele.

Risk Assessment

  • KushCo is a world leader in packaging solutions, offering more than 1,500 different packaging options and has an undisputable reputation for creating safe, legally compliant, child-resistant packaging. The demand for packaging solutions is evergreen, especially for consumer convenience products and cannabis packaging, which is governed by stringent compliance regulations as well; this will ensure that the Company can continue to leverage its expertise and brand name in the near future.
  • The Company is making strategic decisions to establish itself as a fulcrum on which the entire cannabis value-chain is based. From offering solvents for extraction, to packaging, branding and marketing, KushCo offers a full spectrum of products and services to numerous players in the cannabis industry. This makes it an indispensible part of the value chain which augurs well for its growth.
  • KushCo is planning to expand its operations to Europe and other parts of the world, where cannabis is finally being accepted and allowed to be sold and bought legally, contingent on certain regulations. This presents a multibillion dollar opportunity for KushCo, to expand its global footprint and establish itself as a global market leader.
  • The Company, like many other, had to face the heat owing to vaping deaths and increasing concerns about their long-term impact on lungs. As the industry is still in its nascent-stage, there will be many such concerns and issues raised about products, which the Company will have to withstand to be successful in the long-run. Owing to its diverse portfolio and operations, KushCo has so far managed to mitigate the risks associated with such issues.
  • The Cannabis Industry is governed by stringent regulations and is fraught with uncertainty, the Company will have to be prepared to adapt to any changes in policies or regulatory framework and capitalize on new opportunities that may arise in the future such as heavy taxation or clamp-down on operations.
  • Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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