3 Keys to KushCo's Colossal Q2 Revenue Growth

KushCo Holdings (NASDAQOTH: KSHB) just reported a quarter for the record books. The supplier of packaging solutions for the cannabis industry provided an update on its fiscal 2019 second-quarter performance after the market closed on Thursday. The big news from that update was KushCo's all-time high revenue of $35.2 million -- up a whopping 240% year over year and 38% higher than what analysts expected.

How did KushCo deliver such colossal Q2 revenue growth? CEO Nick Kovacevich mentioned three keys to the sales success in the company's earnings conference call Thursday night. 

Image source: Getty Images.

1. California

California claims the biggest legal marijuana market in the U.S. It's not surprising, therefore, that the state is a primary driver of KushCo's revenue growth.

Kovacevich stated that 58% of KushCo's Q2 revenue was made in California. The company's sales in the state soared 273% year over year and 46% quarter over quarter. This growth is especially impressive in light of some nagging issues in the Golden State.

One of those issues is the strength of California's black market. Kovacevich said that a lack of licensed retailers is contributing to the black market and negatively impacting the state's legal cannabis industry. Another issue is the low supply of high-quality flower, which he suggested is hurting cannabis flower sales.  

2. Demand for vape products

KushCo continues to enjoy strong demand for its vape hardware and accessories. Vape product sales soared to $24.2 million in the second quarter, a 383% year-over-year jump and a 58% increase from the first quarter. Kovacevich said that the strongest vape products demand came from California.

While the company is certainly pleased that its vape products sales continue to grow rapidly, there was one slightly negative aspect of the product line's strength. Kovacevich noted that KushCo's goal is to have vape products represent less than 50% of total revenue. In the second quarter, vape products generated 69% of total revenue.

3. Cross-selling 

Kovacevich was especially pleased to report progress in KushCo's efforts to cross-sell more products to existing customers. This cross-selling makes KushCo's relationship with customers more "sticky" and boosts sales.

Over the last 12 months, there were 10 customers that spent at least $1 million with KushCo. Those customers bought, on average, 70 product SKUs (stock keeping units) from the company compared with 20 or fewer SKUs for customers spending less than $100,000. As KushCo improves its ability to cross-sell, Kovacevich expects even higher revenue and profit margins. 

Other growth drivers 

In addition to these three primary factors fueling KushCo's impressive Q2 revenue growth, there were also several other growth drivers. While California remains the biggest source of sales, two other states are coming on strong. KushCo's revenue in Massachusetts more than doubled from the first quarter. Its revenue in Michigan more than tripled from the first quarter.

Also, KushCo's biggest product line is vape hardware and accessories but it's not the fastest-growing product line. That honor goes to the company's energy and natural products, which include solvents and hydrocarbons used in extracting oils and cannabinoids from cannabis plants. KushCo's energy and natural products Q2 revenue jumped 69% from the first quarter to $3.9 million, accounting for 11% of the company's total revenue.