A lot of slogans come to mind when I think about Nick Kovacevich and Kush Bottles (KB), particularly “You’ve come a long way baby” or “I would rather fight than quit”. But until CBE interviewed him to catch-up after the story we wrote about the upstart cannabis packaging company three years ago (Torn ACL, Basketball’s loss, Cannabis Industry’s Gain: Kush Bottles…), I never would thought that a slogan like “Powering the Cannabis Industry” would apply to KB. After having Nick share his and Dallas Imbimbo’s (Nick’s high school friend, fellow founder and board member) vision and foresight in building KB, I am not so sure.
When we first met Kovacevich back in May of 2015, he struck me as a sharp, earnest, competent, transparent and very competitive guy. He had excelled at team sports in high school and college and wasn’t afraid of getting his hands dirty with the team to build a company like any good entrepreneur. The court was out on where he and Dallas would take KB in a low margin, capital-intensive and extremely competitive business like packaging, even with the big upside that a cannabis industry-focused company had. Under his leadership, I believe that they are strategically positioned to see, as he told his sales team last month, explosive growth in 2018 and beyond.
From the outset, Nick and Dallas realized that they would have to craft a plan that would allow KB to expand nationally. They realized that ready access to capital would be imperative and were looking for the resources to not only grow distribution hubs nationally but would also needed to instill financial best practices that would allow them to grow. They instinctively knew that large Fortune 500 competitors would enter the fray at some point and had to craft a strategy that would set them apart as a supply chain anchor for licensees when that occurred.
They brought in Ben Wu, KB’s past Chief Operating Officer and President who left the company this past January after fulfilling his mission to manage growth with the resources at hand and embarked on a path to access the limited public capital sources available to industry players. Ben instilled a culture that reflected a private equity, boot-strapper mentality at KB that was key to their early growth and positioning to go public. As Nick pointed out, KB has never had to resort to the type of toxic financing that has killed the entrepreneurial dreams of many and attributes that to Ben’s leadership and financial discipline.
Coming off KB’s expansion into Washington in 2014-15, the company wanted to enter the rapidly expanding Colorado market following the beginning of adult-use regulation and it required creativity and partnering with someone who already had a presence in the state, Dank.It was a necessary move pre-public listing and allowed Kush to expand at the right time and in the right market. Looking back, Nick told CBE that an armchair quarterback may say they overpaid, but KB was able to buy out their partners and establish a beachhead in the first legal adult-use market in the U.S.
As the investment landscape was steadily improving, KB went public on the Over-the-Counter exchange in January 2016 (OTC: OTCQB: KSHB). They began their effort to leverage the new source of funds it provided to pursue a strategy of diversification and scale, that they believed, would set them apart from a future that would surely include heavily capitalized, existing packaging and supply chain concerns. Fast forward to 2018 and KB has arguably been one of the, if not the most successful, ancillary public companies in the Cannabis Industry domestically. They are one of the first public cannabis companies covered by a Wall Street firm (Cowen Outperform has followed Kush since they became a publicly traded company).
With a market cap of approximately $340 million, KB stock currently trades at $5.35 per share but has traded as high as over $8.50 over the last 52 weeks. Revenues have doubled over each of the last four fiscal years, and they have already met 2017 year-end revenues in the first two quarters of the current fiscal. Growth has historically come from the efforts of their small sales force and their e-Commerce portal as well as from their expansion to over 2500 SKUs, some of which have come from their acquisition of CMP Wellness and Roll Uh Bowl in 2017.
The recent announcement of plans to acquire Summit Innovations, a hydrocarbon supplier, is scheduled to close within the next month or so, adding the CO2 gas that powers supercritical extraction machines preferred by many scale manufacturers of concentrates and oils to their offerings. More significantly, Summit’s addition to KB continues a strategy to become a diversified supply chain company. The plan is to leverage their skill sets and know-how in the cannabis space forcing any existing non-cannabis packaging supply company to play catch-up on when they enter the space. It also provides access to labs and other industry purchasing groups. The plan is to cross-pollinate and integrate Summit’s strengths into both of their distribution pipelines nationwide.
KB, headquartered in Garden Grove, CA, now has distribution centers in Washington, Colorado, and California (Orange County and Los Angeles) as they continue to expand the Garden Grove facility in their transition from the original Santa Ana HQ and distribution hub. They are in the process of looking for 30-45,000 square feet of space to locate another distribution center in the Northeast in the Worcester, MA area as adult-use regulated programs develop in both MA and ME. In addition, the existing medical marijuana programs in CT, MA, ME, NH, RI, VT, and NY provide the volume needed to meet the investment to grow into the heavily populated corridor.
To fuel the explosive growth that Nick believes is in front of KB, he has added talent along the way. KB hired Jim McCormick as COO & CFO in 2017. McCormick brings years of consumer goods (FMCG tobacco, e-cigs & legalized cannabis), oil & gas manufacturing, logistics and service driven organization experience.
They also brought in Edd Pratt to head sales and oversee the expansion of an outbound sales force that now numbers in the 40s. Sales have increasingly required a more educated and consultative approach versus the early days as new legal states have come online and with the possibility of locking up multiple-state relationships. Since KB not only sells packaging products and expertise (increasingly important with the variety of state compliance requirements, customization is a necessity), but also vape cartridges, consumption devices, paraphernalia, terpenes and gas to vertically integrated or silo licensee customers. Their timing of expanding sales & marketing seems to be right on.
Nick and Imbimbo have also been able to call on the expertise of Eric Baum, a friend and board member as well as Co-founder and Managing Partner of Solidea Capital, who has brought much needed insight and strategic thinking to the team. He invested early in KB in 2016.
As KB continues to diversify its offerings to licensees through acquisition, one hurdle on the horizon is the incorporation of brands into the Kush Bottles ecosystem that is becoming outdated for a diversified supply chain entity. With a clear goal of becoming the go-to company with the product and service mix that is essential to their customers businesses, keep an eye out for a re-brand at some point.
Nick and his teammates won a couple of state championships in high school and college and are now competing in the pros where strategic decisions and execution set the champions apart. They have been a leader in revenue growth, diversification and capital accumulation and ultimately want to play with the big boys on the NASDAQ or New Your Stock Exchange as they continue their march to “Power the Cannabis Industry”.
Cannabis Business Executive Ancillary Business Background Information
Company Name: Kush Bottles, Inc. (OTC: OTCQB : KSHB)
Year Founded: 2010
Ownership structure/operating entities: Kush Bottles — Roll uh Bowl, CMP Wellness
Nick Kovacevich, CEO
Jim McCormick, CFO & COO
Edd Pratt, Vice President of Sales,
Headquarters: Garden Grove, California
Industry Segment/Category: Ancillary products, vaporizers, packaging and custom branded solutions for the cannabis industry
Current Markets/States Served: Kush Bottles serves all legal medicinal and recreational state markets across the U.S., in addition to South America and Europe. It services the supply chain of cannabis, including growers, extractors, manufacturers, retailers, dispensaries and more.
Number of Locations: Kush Bottles has facilities in Colorado, Washington and California with an East Coast facility opening in the spring.
Current Number of employees: 100 (More to come when Summit Innovations purchase is completed.
Market Strategy/Goal: Kush Bottles is a leading provider of packaging, supplies, vaporizers, accessories and branding solutions for the regulated cannabis industry.
2016 Revenues: $8,215,452
2017 Revenues: $18,799,169
2018 Projected Revenue: On track for $45 million plus pre-Summit acquisition.
Company Revenue Mix: Kush Bottles supplies packaging, supplies, vaporizers, accessories and branding solutions to the regulated cannabis industry.
Expansion Plans: Kush Bottles plans to open a new distribution facility in the New England-area to expand its physical presence in the rapidly growing East Coast legal cannabis market.
On April 10, 2018 Kush Bottles announced plans to acquire Summit Innovations, LLC, a leading distributor of hydrocarbons to the legal cannabis industry based in Denver, Colorado. Hydrocarbon gases are used to turn cannabis plants into oils, and this acquisition marks Kush Bottles’ entry into a new business vertical supplying gas to cannabis extractors.
Financing strategy: Kush Bottles is a public company listed on the OTC exchange under the ticker symbol, KSHB. In February, Kush Bottles secured $6 million investment from its strategic partner, Merida Capital Partners, a leading cannabis ancillary fund, Merida Capital Partners.