FQ4 and FY 2020 Supplemental Earnings Slides October 29, 2020 - - PowerPoint PPT Presentation

FQ4 and FY 2020 Supplemental Earnings Slides

October 29, 2020 OTCQX: KSHB

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IMPORTANT CAUTIONS REGARDING FORWARD LOOKING STATEMENTS

A G E N DA

1. FQ4 2020 Highlights and Progress

• n Strategic Plan

2. FQ4 2020 Financial Summary 3. Outlook for FQ1 2021 and FY 2021 Guidance 4. Q&A Session

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FQ4 2020 Highlights and Progress on Strategic Plan

FQ4 2 0 2 0 HIGHL IGHTS

✓ Net Revenue of $26.5 Million

✚ Represents growth of 19% compared to FQ3 2020 ✚ Exceeded financial guidance of between $25.5 million and $26.0 million ✚ Revenue from Top 100 Customers up 26% sequentially due to growth with larger customers and securing new customers

✓ Strong GAAP Gross Margins of 26% and Continued Strong Non-GAAP Gross Margins of 29%

✚ Returned to 25%+ GAAP gross margins ✚ Sixth consecutive quarter of 20%+ non-GAAP gross margins

✓ Cost-Cutting Reductions Substantially Complete with Cash SG&A of $7.3 million

✚ Cash SG&A down 50%+ from FQ1 to FQ4 2020

✓ Achieved Positive Adjusted EBITDA For First Time in Three Years, Demonstrating Continued Operating Leverage

✚ Improved from ($2.7) million in FQ3 2020 to $1.0 million in FQ4 2020

✓ Positive Cash Flow From Operations For First Time in Three Years

✚ Cash flow from operations improved from ($1.4) million in FQ3 2020 to $0.5 million in FQ4 2020

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$28.2 $24.6 $18.4 $23.1 $35.0 $30.1 $22.3 $26.5 FQ1 2020 FQ2 2020 FQ3 2020 FQ4 2020

Top 100 Customers Rest of Customers

RET URNED TO SEQUENT IA L GROWT H

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.

81% 82% 82% 87%

QoQ Growth RECREATIONAL STATES 18% MEDICAL STATES 27% TOTAL REVENUE 19% Geography Q4 2020 Revenue % Q4 2020 Revenue QoQ Growth FY 2020 Revenue % FY 2020 Revenue CA $4.2 16.0% 24% $21.4 18.8% MI $2.3 8.7% 40% $7.2 6.3% WA $2.0 7.7% 4% $8.8 7.8% MA $1.5 5.9% 58% $5.0 4.4% CO $1.5 5.8% 1% $8.7 7.6% IL $1.4 5.4% 48% $4.1 3.6% OR $1.0 4.0% 2% $5.9 5.2% NV $0.6 2.4%

• 37%

$4.5 4.0% ME $0.3 1.2% 3% $1.2 1.1% Other Rec States $0.2 0.7% 19% $0.7 0.6% REC STATES TOTAL $15.3 57.6% 18% $67.6 59.4% Medical States $9.0 34.1% 27% $34.7 30.5% Canada $1.6 6.0%

• 21%

$8.3 7.3% Other Countries $0.2 0.6% 297% $0.2 0.2% Other* $0.5 1.7% 222% $3.0 2.6% TOTAL REVENUES $26.5 100.0% 19% $113.8 100.0%

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 Q4 2020 Revenue​ % of Revenue QoQ Growth FY 2020 Revenue​ % of Revenue Vape $18.3 69.1% 37% $73.7 64.8% Packaging, Papers & Supplies $6.3 23.9%

• 5%

$27.1 23.8% Energy & Natural Products $1.7 6.4%

• 24%

$9.3 8.2% Services** $0.1 0.6% NM $3.7 3.2% TOTAL REVENUES $26.5 100.0% 19% $113.8 100%

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

Strategy Component Achievements and Milestones Enhanced Focus on Top 100 Customers

• Strategic targeting of leading operators and consolidators
• Salesforce focused on profitability vs. volume, as well as additional cross-selling opportunities
• Introduction of long-term supply agreements with high sell-through operators

Improved KYC and More Profitable Approach with Customer Orders

• Implementation of disciplined underwriting criteria to help ensure healthy AR
• Improved customer intake process to better understand our customers and their compliance

measures Warehouse Optimization

• Successfully closed and exited Las Vegas, Denver, and Santa Rosa facilities, and sublet Garden

Grove warehouse

• Elimination of lease costs related to underutilized satellite warehouses
• Significant reduction of consulting, software, and transportation costs

Streamlined Workforce

• Elimination of temporary labor needed to support satellite warehouses
• Reduction of salesforce in line with more concentrated customer focus

Reduced capital intensity of business plan and projecting steady improvement of Adjusted EBITDA margin

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C O N T I N U E D E X E C U T I O N O F S T R AT E G Y T O T O D R I V E P R O F I TA B L E G R O W T H

FQ4 2020 Financial Summary

Q4 2020 Q3 2020 Q4 2019

Net Revenue $26.5 $22.3 $47.0 GAAP Gross Profit [Margin] $6.8 [26%] $2.4 [11%]1 $9.4 [20%] Non-GAAP Gross Profit [Margin] 2 $6.9 [29%] $5.7 [28%] $9.6 [20%] Cash SG&A3 $7.3 $7.7 $15.1 Adjusted EBITDA $1.0 ($2.7) ($5.2)

FQ4 2020 I NCOME STAT EMENT SNAPSHOT

11 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 August 31, 2020, May 31, 2020, and August 31, 2019 were $24.0 million, $20.4 million, and $47.0 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

PROFITAB IL IT Y INCREA SED

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* Adj. EBITDA for FQ2 2020 included approximately $9.1 million of bad debt expense that the company views as one-time in nature. Note: Amounts in millions.

$35.0 $30.1 $22.3 $26.5 $(6.8) $(14.8) $(2.7) $1.0 FQ1 2020 FQ2 2020 FQ3 2020 FQ4 2020

Revenue

• Adj. EBITDA

$(5.7)*

• Aug. 31, 2020

May 31, 2020

• Aug. 31, 2019

Accounts Receivable, Net $9.4 $11.2 $26.0 Inventory, Net $28.0 $24.0 $43.8 Cash $10.5 $11.1 $3.9

FQ4 2 0 2 0 BALANCE SHEET SNAPSHOT

13 Amounts in millions.

Outlook for FQ1 2021 and FY 2021 Guidance

OUTLOOK FOR Q1 2 0 2 0

✓ Continuing to Grow Business with Top Customers

✚ Additional cross-selling opportunities ✚ Improvement or extension of credit terms to select customers ✚ Secure supply agreements

✓ Focusing on Adding New MSO and LP Customers

✚ Investing in salesforce and launching campaigns to secure new MSO customers

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FISCAL 2 0 2 1 GUIDA NCE

Amounts in millions.

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Note: Guidance is effective only as of the date of this presentation. The Company has provided Adjusted EBITDA guidance only on a non-GAAP basis and has not provided a reconciliation of the forward-looking non-GAAP Adjusted EBITDA financial measure to the most directly comparable GAAP financial measure, net income (loss), because not all of the information necessary for a quantitative reconciliation is available to the Company without unreasonable effort. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Metric FY 2021 Guidance Revenue $120.0 - $150.0 million

• Adj. EBITDA

$5.0 - $7.0 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 August 31, 2020 August 31, 2019 Net Revenue $ 26,468 $ 46,972 China tariff surcharge (2,444)

• Non-GAAP Net Revenue

24,024 46,972 GAAP Gross Profit $ 6,837 $ 9,420 GAAP Gross Profit % 26% 20% Purchase order cancellation charges 404

• Adjusted for China tariff impact, net

(336) 145 Non-GAAP Gross Profit $ 6,905 $ 9,565 Non-GAAP Gross Profit %* 29% 20% GAAP Net Loss $ (7,288) $ (11,544) Purchase order cancellation charges 404

• Adjusted for China tariff impact, net

(336) 145 Non-recurring litigation and consulting costs 666 397 Stock-based compensation 2,934 4,545 Restructuring costs 105 366 Foreign exchange loss 262

• Gain on disposition of assets
• 150

Loss on extinguishment of debt 1,651

• Change in fair value of warrant liability

(1,644) (1,985) Impairment loss on intangible asset 1,156

• Change in fair value of equity investment

687 269 Change in fair value of contingent consideration

• 466

Non-GAAP Net Loss $ (1,403) $ (7,191)

(

Non-GAAP Net Loss per basic share $ (0.01) $ (0.08) Non-GAAP Net loss per diluted share (0.01) (0.08) Basic Weighted Average Shares Outstanding 124,940 89,091 Diluted Weighted Average Shares Outstanding 124,940 89,091 Non-GAAP Net Loss $ (1,403) $ (7,191) Depreciation and amortization expense 958 789 Interest expense 1,482 1,071 Income tax expense (29) 114 Adjusted EBITDA $ 1,008 $ (5,217)

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 August 31, 2020 and August 31, 2019 were $24.0 million and $47.0 million, respectively.