Few industries have had investors seeing more green over the past couple of years than legal marijuana. According to the latest projections in “Marijuana Business Factbook 2019” from Marijuana Business Daily, legal aggregate U.S. weed sales should catapult from between $8.6 billion and $10 billion in 2018 to between $11.2 billion and $13.7 billion this year.
To put these figures into some perspective, Wall Street has opined that Canada will be generating between $5 billion and $6 billion in annual cannabis sales by 2022 when its pot industry begins to fully mature. That’s potentially less than half of what the U.S. market will generate in 2019, despite the fact that only nine states currently allow recreational weed to be legally sold (adult-use marijuana is legal for consumption in Vermont, but not for sale). In terms of sheer potential, the U.S. is the crown jewel of the cannabis industry.
Perhaps, then, it’s no surprise that Wall Street expects some of the biggest long-term marijuana stock gains to come from U.S.-based companies. As of early last week, there were three U.S.-headquartered pot stocks that Wall Street’s consensus price target suggests will (at least) double…
At its closing low last week, a share of Garden Grove, Calif.-based, KushCo Holdings(NASDAQOTH:KSHB) could be had for just $4.15, meaning its market cap had fallen below $370 million. Yet, according to Wall Street’s consensus price target, ancillary player KushCo could be worth $8.40 per share, or nearly three-quarters of a billion dollars in market cap.
KushCo has certainly had its fair share of problems of late. Having initially absorbed Chinese tariffs on its imported vape products, its gross margin has come in below the company’s targeted level of 30% (or higher) for a couple of quarters. Additionally, accounting errors that led to restatements of its 2017 and 2018 operating results haven’t exactly inspired confidence in management.
But the thing to remember about both of KushCo’s problems is that neither have long-term legs. The company is correcting its margins weakness by passing along tariffs costs to consumers, and the accounting errors, which have led to tighter governance, didn’t impact sales, cash on hand, or cash flow.
The reason I chose to add KushCo to my own portfolio in May has to do with its ability to hit multiple niches in the ancillary space. It’s one of the most well-known providers of compliant packaging and branding solutions. Since the legality of cannabis can change by country, state, or jurisdiction, KushCo takes pains to ensure its more than 5,000 clients remain compliant, as well as help their products stand out in an increasingly crowded field.
KushCo also has a line of vape products that should be set for expansion in Canada by this coming October, which is when Health Canada is expected to legalize numerous alternative cannabis consumption options.
Lastly, the company is also in line to benefit as derivatives become more popular with the younger generation. As a provider of hydrocarbon gases and solvents for the respective production of oils and concentrates, KushCo finds itself as a critical middleman in a number of cannabis functions…
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