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KushCo Makes a Surprising Move Into a New Business

By Eric Volkman - Nov 7, 2019 at 12:35PM

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It has become a broker of a crucial commodity in the cannabis industry.

KushCo Holdings ( KSHB ) is pushing into a cannabis segment that is new not only for the company but for the cannabis industry as a whole. On Wednesday, it announced that it has launched a hemp trading operation.

In its press release, KushCo said that the venture will be aimed at serving prequalified buyers of the plant. The business will comply with all applicable laws. Additionally, it said it is partnering with an unidentified "leader in U.S. industrial hemp farming" that will act as the supplier of the hemp.

Cannabis leaf made of several $100 bills.

Image source: Getty Images.

The company will conduct its hemp trading under both spot and long-term contracts. It will also broker trading in hemp-derived and -related goods such as cannabidiol (CBD) oil and CBD distillate.

Although hemp trading exchanges exist, they are relatively new and are run by small, privately held enterprises. At the moment, these are not overseen by the U.S. Commodities Futures Trading Commission, the government body responsible for regulating commodity marketplaces.

Hemp is a form of cannabis that has relatively low delta-9 tetrahydrocannabinol (or THC, the substance that gets people high). The hemp market was opened last December when the Farm Bill was signed into law. This piece of legislation expands subsidies for farmers and provides other forms of assistance. Crucially for the cannabis industry, it also legalizes hemp products and the CBD that can be drawn from the plant.

KushCo said the new activities should help broaden its scope and boost profitability. "Overall, the hemp trading business will not only expand our CBD footprint and amplify our cross-selling opportunities, but more importantly, will contribute significant EBITDA given its capital light nature," the company asserted.

KushCo aims to post positive EBITDA -- earnings before interest, taxes, depreciation, and amortization -- by the second half of 2020.

The company is estimating that the hemp trading operation will contribute more than $25 million in revenue for its fiscal year 2020, which began on Sept. 1. This promises to make quite an impact: KushCo's latest quarterly top-line figure was $41.5 million.

Investors seem to like KushCo's venture into the new business line. The marijuana stock closed up by more than 3% on Wednesday.

Meanwhile, KushCo is scheduled to release its Q4 and full-year fiscal 2019 results on Thursday at 4:30 p.m. EST.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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