Kush Bottles (OTC: KSHB)

01/13/2017

KUSH BOTTLES

Introduction

Greetings and Happy New Year! This is the first article in our weekly series covering stocks in the burgeoning cannabis sector, one of the most rapidly growing and exciting of any industry in the publically-traded universe. Opportunities for both trading and investing profits will abound in 2017, but as with all stocks, there are inherent risks as we seek out these rewards. Our goal is to alert you to solid trades in the sector, and hopefully steer you away from some of the “weak sisters.”

By way of background, I have been a stock trader for two decades, and have diligently tracked cannabis stocks on the OTC exchange for about ten of those years (yes, they’ve been out there that long). In addition to my FST work, I am currently serving as regional editor for Marijuana Industry News, a magazine published by MJIC media, a growing force in the cannabis investment industry. 

Until 2014, most cannabis stocks were “dead money,” highly unappealing to both traders and investors alike, and usually for many good reasons. With a growing number of U.S. states first approving medical cannabis laws over the past dozen years, and now greenlighting recreational use, enthusiasm for these stocks has grown by leaps and bounds. Going forward, we will focus on both U.S. and U.S. exchange-traded companies based in Canada—a country which has been several steps ahead of the U.S. due to a more progressive legal landscape.  

Kush Bottles, Inc. (OTC: KSHB)

Founded in 2010 and based in California, Kush Bottles, Inc. engages in the packaging business. Its activities include the marketing and sale of packaging products and solutions to customers operating in the regulated medical and recreation cannabis industries. It offers a range of products including bottles, bags, tubes, and containers among local urban farmers, and in green house growers, as well as branding services.

Kush Bottles first caught my attention a few years ago when it was a sub-$1 issue, then went on to enjoy a momentum-fueled ride during the early 2014 and late 2016 cannabis sector moves, at one point briefly breaching the $10 level. I wanted to feature this company first for an important reason: it does not “directly touch the plant,” a key distinction in an industry in which U.S. federal law still considers cannabis itself illegal, with the DEA continuing to periodically raid and shutter cannabis growing operations. Thus, the risk inherent in a KSHB investment is arguably far less than many other plays in the sector. Although the cultural tide in the U.S. has clearly turned in favor of cannabis, federal laws still cast a significant shadow and barrier to investment capital—which is why we will be highlighting Canadian cannabis stocks so prominently in the coming months.

The most eye-catching thing about Kush Bottles is that the company’s revenue has jumped extremely quickly over the past few years. In August 2014, the company reported $1.7 million in annual sales. That figure more than doubled to $4 million by August 2015, and by August 2016 the number had doubled again to $8.2 million. Moreover, the company reported profits of $395,000, $339,000 and $71,000, respectively, over those three years. You’ll be hard-pressed to find too many other OTC-traded stocks with sales growth like that, and while the pace of that growth and profits may be uneven, 2016’s watershed election results—headlined by California’s legalization of recreational cannabis—puts Kush Bottles in the revenue growth catbird seat.

 

Looking at trading technicals, as the 2016 election cannabis stock rally sputtered, profit-taking knocked KSHB’s share price back to the sub-$3 level. That’s where the issue found some support and began the grinding process of consolidation. In the final few trading days of the year KSHB perked up a bit, penetrating the $3 mark on average trading volume of about 150,000 shares daily. The company has a modest public float of 15.5 million shares, with a total of 49 million shares outstanding.

 

Given the rapidly increasing demand for cannabis, and states’ oversight of the industry which has increasingly tightened packaging standards, KSHB should be on the radar of anyone interested in cannabis stocks. The company has been actively forming strategic alliances, making investor presentations and expanding its board, and due to its position in the industry has a solid chance of uplisting to a bigger exchange in the coming month.

 

Conclusion

 

By way of full disclosure, I don’t currently own any KSHB shares, but will be trading in and out of the company’s stock this year. As always, do your own due diligence, with the OTC Market’s website containing a wealth of information about each stock traded on those exchanges. You can find Kush Bottles information here: http://www.otcmarkets.com/stock/KSHB/quote.

 

Keep in mind that cannabis stocks are prone to experience powerful sector moves, with the share prices of a basket of these issues tending to rise at the same time—as well as fall. That makes it imperative for you to establish “watch lists” of tickers in the industry and diligently monitor them for those moves on a regular basis. With patience, cannabis trades should take your portfolio higher this year and beyond.