FQ3 2020 Supplemental Earnings Slides July 8, 2020 OTCQX: KSHB - - PowerPoint PPT Presentation

FQ3 2020 Supplemental Earnings Slides

July 8, 2020 OTCQX: KSHB

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IMPORTANT CAUTIONS REGARDING FORWARD LOOKING STATEMENTS

A G E N DA

1. FQ3 2020 Highlights and Progress

• n Strategic Plan

2. FQ3 2020 Financial Summary 3. Outlook for Q4 and Achieving Positive Adjusted EBITDA 4. Q&A Session

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FQ3 2020 Highlights and Progress on Strategic Plan

FQ3 2 0 2 0 HIGHL IGHTS

✓ FQ3 Net Revenue of $22.3 Million

✚ Revenue from Top 100 Customers down 26% sequentially due to order lumpiness from larger customers

✓ Continued Operational Efficiencies and Favorable Product Mix Help Drive 28% Non-GAAP Gross Margins

✚ Fifth consecutive quarter of 20%+ non-GAAP gross margins

✓ Cost-Cutting Initiatives Being Executed Ahead of Schedule with FQ3 Cash SG&A of $7.7 million

✚ Cash SG&A down 50% from FQ1 to FQ3 2020 ✚ Improving FQ4 2020 Cash SG&A Guidance to $6.5 million to $7.5 million (previously $7.5 million to $8.5 million)

✓ Substantial Improvement in Adjusted EBITDA Even With Lower Revenue Base, Demonstrating Operating Leverage

✚

• Adj. EBITDA improved substantially to ($2.7) million in FQ3 2020, compared to ($14.8) million in FQ2 2020 and ($7.5) million in FQ3 2019

✚ Well-positioned to achieve positive adjusted EBITDA in Q4 2020

✓ Cash Burn Substantially Reduced and Company On Track to Generate Positive Cash Flow From Operations

✚ Cash flow from operations improved from ($10.7) million in FQ2 2020 to ($1.4) million in FQ3 2020 5

$24.0 $24.6 $18.3 $35.0 $30.1 $22.3 FQ1 2020 FQ2 2020 FQ3 2020

Top 100 Customers Rest of Customers

REV ENUE BY CUSTOMER GROUP

Revenue in millions.

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Note: The figures in yellow dots represent the percentage of the quarter’s total revenue that is represented by the Top 100 customers by revenue.

69% 82% 82%

QoQ Growth YoY Growth RECREATIONAL STATES

• 33%
• 64%

MEDICAL STATES 0% 79% TOTAL REVENUE

• 26%
• 46%

Geography Q3 2020 Revenue % Q3 2020 Revenue YoY Growth QoQ Growth CA $3.5 15.6%

• 84%
• 41%

WA $1.9 8.7%

• 39%
• 16%

MI $1.6 7.4% 38%

• 26%

CO $1.5 6.9%

• 48%
• 37%

NV $1.0 4.6%

• 52%
• 14%

MA $1.0 4.4%

• 46%
• 47%

IL $1.0 4.3% 185%

• 12%

OR $1.0 4.3%

• 63%
• 49%

ME $0.3 1.4%

• 30%

4% Other Rec States $0.1 0.6%

• 41%
• 32%

REC STATES TOTAL $13.0 58.2%

• 64%
• 33%

Medical States $7.1 32.0% 79% 0% Canada $2.0 9.0% 217%

• 42%

Other Countries <$0.1 0.2%

• 63%
• 59%

Other* $0.1 0.6%

• 83%

149% TOTAL REVENUES $22.3 100.0%

• 46%
• 26%

REVENUE BREAKOUT BY LOCATION

Note: Amounts in millions. Total amounts may not add up due to rounding * Other includes states that currently do not have an adult recreational use and/or medical use program 7

Product Categories Q3 2020 Revenue​ % of Revenue YoY Growth Q3 2019 Revenue​ QoQ Growth Q2 2020 Revenue Vape $13.4 60.2%

• 55%

$29.6

• 35%

$20.7 Packaging, Papers & Supplies $6.6 29.8%

• 5%

$7.0

• 4%

$6.9 Energy & Natural Products $2.2 10.0%

• 48%

$4.3

• 2%

$2.3 Services** NM NM

• 99%

$0.5

• 98%

$0.2 TOTAL REVENUES $22.3 100.0%

• 46%

$41.5

• 26%

$30.1

REVENUE BREAKOUT BY CATEGORY

8 * Amounts in millions. Total amounts may not add up due to rounding ** Services revenue includes sales from hemp trading, retail services, and the Hybrid Creative NM = Not Meaningful

Customer Value # of Customers Avg Revenue Avg # of SKUs Change from Q2 (TTM) (Customers) Change from Q2 (TTM) (SKUs) $10 – 49K 484 $21,800 10

• 67
• 2

$50 – 99K 117 $70,012 17 +2 $100 – 249K 79 $156,126 25

• 6

$250 – 499K 35 $361,399 32 +1

• 5

$500 – 999K 28 $697,372 52

• 6
• 4

$1,000K+ 20 $3,306,596 75 +1

• 9

Customer Size FY 2016 FY 2017 FY 2018 FY 2019 TTM $50-99k 6 29 88 126 117 $100 - $249k 5 13 51 89 79 $250 - $499k 2 7 18 39 35 $500 - $999k 5 10 23 28 $1000k+ 4 19 20

SKU CROSS - SELL PROGRESSION (T TM)

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REST OF CUSTOMERS TOP 100 REST OF CUSTOMERS TOP 100

Note: KushCo considers its Top 100 customers to be financially stronger and more creditworthy MSOs, LPs, and leading brands that currently drive the majority of the Company’s business.

P R O G R E S S O N N E W S T R AT E G I C P L A N

Status Strategy Component Progress Update In Progress Going Deeper with the MSOs, LPs, and Leading Brands

• Becoming more entrenched in our Top 100 customers’ decision-

making processes

• Using long-term supply agreements to lock in customers
• Sales team focused on winning additional lines of business

Completed Implementing a Profitable, More Efficient, and Automated Approach with Customer Orders

• Customer support line launched and processing smaller orders

more efficiently

• Stricter credit terms resulting in healthier AR

Completed Reductions in Force to Better Align Workforce with New Strategy

• More lean and efficient team accomplishing “More with Less”
• 50% reduction in Cash SG&A in FQ3 compared to FQ1

In Progress Warehouse Optimization and Reduction of Other Operating Expenses

• Significant reduction of consulting and software costs
• Successfully closed and exited Las Vegas, Denver and Santa Rosa

facilities, and sublet Garden Grove warehouse

FQ3 2020 Financial Summary

Q3 2020 Q3 2019

Net Revenue $22.3 $41.5 GAAP Gross Profit [Margin]1 $2.4 [11%] $7.4 [18%] Non-GAAP Gross Profit [Margin] 2 $5.7 [28%] $9.4 [23%] Cash SG&A3 $7.7 $16.4 Adjusted EBITDA ($2.7) ($7.5)

FQ3 2020 I NCOME STAT EMENT SNAPSHOT

12 1) Gross profit during fiscal Q3 2020 was impacted by several restructuring activities the Company implemented to execute its strategic plan of aligning more closely with its Top 100 customers and achieving positive adjusted

• EBITDA. These activities led to a $2.1 million excess and obsolete inventory

write-down and a $1.0 million purchase order cancellation charge, both driven by the Company’s decision to right size inventory levels and discontinue nearly all of its stock SKUs in order to focus more on custom and best-selling stock inventory demanded by its larger customers. 2) Non-GAAP Gross Profit excludes the impact of certain non-recurring

• items. Non-GAAP Gross Profit Margin is calculated by dividing Non-GAAP

Gross Profit by Non-GAAP Net Revenue [Net Revenue minus the total amount billed for Section 301 Tariffs]. Non-GAAP Net Revenue for the three months ended May 31, 2020 and May 31, 2019 were $20.4 million and $41.1 million, respectively. 3) Cash SG&A excludes non-cash expenses, such as bad debt, depreciation, amortization, and stock-based compensation. Amounts in millions. NM = Not Meaningful

May 31, 2020

• Feb. 29, 2020
• Aug. 31, 2019

Accounts Receivable, Net $11.2 16.9 $26.0 Inventory, Net $24.0 26.4 $43.8 Cash $11.1 11.4 $3.9

FQ3 2 0 2 0 BALANCE SHEET SNAPSHOT

13 Amounts in millions.

Outlook for Q4 and Achieving Positive Adj. EBITDA

OUTLOOK FOR Q4

✓ Anticipating Q3 to be the “Bottom” for Revenue in Fiscal 2020

✚ Expecting to secure most of the orders that were pushed out from Q3 ✚ Anticipate signing additional supply agreements with leading MSOs and LPs ✚ Improving regulatory landscape to support growth (e.g. MA gradually returning to normal)

✓ Laser-focused on Core Businesses (Vape, Packaging, and Energy) to Drive Sales Again

✚ Vape: enhanced focus on retaining core business and exercising more competitive pricing approved by vendor ✚ Packaging: enhanced focus on becoming more efficient while working with Top 100 customers to promote stickier and more value-add custom packaging solutions ✚ Energy: new initiative to fully launch stainless steel tanks to customer and partner network, and monetize investment

✓ Keeping a Tight Lid on Costs

✚ Monthly departmental checks to ensure budgets are being met ✚ “A-Player” mentality contributing to “doing more with less” while setting the foundation for a more disciplined and selective hiring approach going forward

✓ Fiscally Prudent Cash Management and Working Capital Improvement to Continue Supporting the Business

✚ Reiterating expectation that current cash on hand, cash flow from operations, and lender capital to support the business as it works to achieve positive adjusted EBITDA and positive cash flow from operations

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POSIT IV E ADJ. EB IT DA W IT HIN REACH

Amounts in millions.

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Note: Guidance is effective only as of the date of this presentation.

Metric FQ4 2020 Guidance Revenue $24.0 - $26.0 million Cash SG&A $6.5 - $7.5 million

• Adj. EBITDA

($1.0) - $1.0 million

THANK YOU

Investor Relations Contact: Najim Mostamand, CFA Director of Investor Relations 714-539-7653 ir@kushco.com

Appendix

Three Months Ended Three Months Ended May 31, 2020 May 31, 2019 Net Revenue $ 22,264 $ 41,486 China tariff surcharge (1,903) (370) Non-GAAP Net Revenue 20,361 41,116 GAAP Gross Profit $ 2,372 $ 7,396 GAAP Gross Profit % 10.7% 17.8% Adjusted for non-recurring air freight costs

• Adjusted for non-recurring temporary labor costs
• Restructuring — excess and obsolete inventory

2,136

• Purchase order cancellation charges

963

• Adjusted for China tariff impact, net

276 1,972 Non-GAAP Gross Profit $ 5,747 $ 9,368 Non-GAAP Gross Profit %* 28.2% 22.8% GAAP Net Loss $ (13,488) $ (10,598) Adjusted for non-recurring air freight costs

• Adjusted for non-recurring temporary labor costs
• Restructuring — excess and obsolete inventory

2,136

• Purchase order cancellation charges

963

• Adjusted for China tariff impact, net

276 1,972 Non-recurring litigation and consulting costs 121 550 Stock-based compensation 2,985 2,667 Restructuring costs 952

• Severance costs
• Gain on disposition of assets
• Lease termination liability release gain

(798)

• Equity investment impairment

230

• Change in fair value of warrant liability

1,160 (6,254) Change in fair value of equity investment 9 71 Change in fair value of contingent consideration

• 2,961

Non-GAAP Net Loss $ (5,454) $ (8,631)

Non-GAAP Net Loss per basic share $ (0.05) $ (0.10) Non-GAAP Net loss per diluted share (0.05) (0.17) Basic Weighted Average Shares Outstanding 119,574 88,286 Diluted Weighted Average Shares Outstanding 119,574 88,377 Non-GAAP Net Loss $ (5,454) $ (8,631) Depreciation and amortization expense 1,227 633 Interest expense 1,487 474 Income tax expense

• 13

Adjusted EBITDA $ (2,740) $ (7,511)

NON-GAAP FINANCIAL MEASURES

*Non-GAAP Gross Profit % is calculated by dividing Non-GAAP Gross Profit by Non-GAAP Net Revenue [Net Revenue minus the total amount billed for Section 301 Tariffs]. Non-GAAP Net Revenue for the three months ended May 31, 2020 and May 31, 2019 were $20.4 million and $41.1 million, respectively.