Kush Bottles Inc (OTCMKTS:KSHB) Is Expanding Through Acquisition: Smart Move?

Kush Bottles Inc (OTCMKTS:KSHB) is one that we have come back to on a number of occasions in the past. It is a cannabis play, and as with the majority of the wider cannabis space, it picked up strength on the back of the recreational legalization ballots towards the end of 2016. The company gained more than 253% between August and November, and then gave back a large portion of these gains during the subsequent four weeks from November 10.For a large number of the cannabis sector entities that experienced this hype driven run, that was it. For Kush, however, things were just getting started. The company has been a roller coaster stock for the first couple of quarters of 2017, and as we have noted on a number of occasions, has been a nice quick trade play for many; in on the dips for a quick profit from any near-term recovery.We have struggled to list it as a long-term reward holding, purely because there is so much uncertainty as to how this market is going to mature going forward. A large number of companies are vying for market share, and while some of these will no doubt end up market leaders in five or 10 years, many will fall by the wayside.Kush just made an announcement that points towards a strategy that we feel, if the company can execute on it successfully, could help it push its way into the former category of those two just described.Here is what we've learned, and how it fits into our thesis.By way of a quick introduction to Kush bottles, this one is a cannabis packaging stock. The company develops, manufactures and sells products that help people transport packaged cannabis from one place to another, be it personally or for some degree of commercial activity (a shop mailing cannabis, for example). It is trying to position itself as a premium brand, and also has a type of white label offering, whereby it will brand its own products with the monikers of stores or other companies.The latest announcement relates to an acquisition by Kush of another cannabis paraphernalia retailer – a company called CMP Wellness. CMP is a privately held distributor of vaporizers, cartridges and accessories based in Los Angeles, and it has been in business since 2013. That is not a long time, but we dug into the company a little bit and anecdotal evidence suggests that its reputation falls in line with that which Kush is striving to achieve – a relatively high-end brand with a decent following among cannabis users, both recreational and medical.The acquisition came through a $1.5 million cash payment and the issuance of 7.8 million shares of Kush stock. What we find most attractive about this acquisition is the growth reported by CMP over the last 24 months. For the 12 months to August 2015, CMP Reported revenues of $0.8 million. During the subsequent 12 months, this grew to $3.1 million. For the six months to February 28, 2017, the same figure hit $4.4 million. Based on current share price, the acquisition valued CMP at somewhere in the region of $20 million. In a growth industry like this, and with an established brand in place, that's not bad.The upside here is the potential for expansion through acquisition, which we first learned about as a core strategy for Kush the earlier this year, and which the company now seems to be executing on accordingly.The downside, of course, is rooted in the dilution associated with this sort of acquisition strategy. The company has to issue to bring these entities on board, and for an early shareholder, repeated issue can be frustrating. So long as management continues to issue for entities that are going to add immediate top-line value, however, we think there's credence to the suggestion that this is a rewarding long-term push.Bottom line, this company is far from established as one of the leaders in the space right now. With that said, however, it is moving in the right direction, and so long as it can avoid the common dilutive pitfalls associated with overaggressive expansion up, it might be a nice long-term punt.We will be updating our subscribers as soon as we know more. For the latest updates on KSHB, sign up below!Disclosure: We have no position in KSHB and have not been compensated for this article.