Let’s take some time to review the role ancillary businesses of the cannabis industry can play in an investment portfolio. An ancillary business is basically a company that is setting up the manufacturing facilities and packaging needs of an industry. The best example of an ancillary business in the cannabis industry is Kush Bottles Inc. (OTCQB: KSHB). The Company was founded in 2010 and its CEO and Chairman is Nicholas Kovacevich. Kush Bottles Inc, is a wholesale producer of packaging, supplies, vaporizers and branding for the cannabis industry. They never actually touch marijuana. They were voted one of the fastest growing companies in America in 2015 by Inc. 5000 and are based out of California.
Kush Bottles Inc. did a press release on February 13th, announcing a $6 million cash injection from Merida Capital Partners to help them expand their east coast operations. Kush Bottles provides the packaging for a lot of the legal marijuana that is sold in states around the country.
Nicholas Kovacevich, Chairman and CEO of Kush Bottles, commented: “The Merida team’s deep understanding of the unique dynamics of the cannabis industry, strong industry networks and willingness to finance our growth will be invaluable as we exploit new opportunities and enter new markets. We plan to use this capital investment to expand our range of proprietary products to meet the needs of the industry, advance our M&A strategy to take advantage of consolidation in the industry and grow market share.”
Merida’s Managing Partner, Mitchell Baruchowitz, commented: “Since we first started discussing a partnership and investment in Kush Bottles nearly seven months ago, we have been deeply impressed by the vision of Nick and his team and the progress they have made strategically positioning Kush Bottles as much more than simply a packaging company. Kush Bottles’ acquisitions and in-house development efforts have established the Company as a critical link in the supply chain for more than 5,000 cannabis growers, extractors, manufacturers and retailers. The Merida team could not be more excited to put significant resources to work to build on this foundation to expand Kush Bottles’ leading position.”
Ancillary business are potentially worth considering for those investors worried about the federal prohibition of marijuana and its potential impacts upon cannabis company share values. Companies like Kush Bottles Inc. will likely be impacted severely by any hard selloff in the cannabis industry, however they may also show more resiliency than companies that must handle marijuana on a regular basis. An ancillary business may have more alternatives to pivot should calamity hit.
You can see that Kush Bottles struggled along with the rest of the market during the recent downturn but held well above its 50 dma. The 50 dma is also still trending up hard and is holding strong above the 200 dma. This company is showing a lot of relative strength and certainly Merida Capital Partners’ willingness to risk $6 million to facilitate east coast expansion sends a strong message to investors. Looking for this sort of resiliency is what an investor should be searching for to help identify well organized and competent businesses.