10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 000-55418

KUSHCO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada	46-5268202
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6261 Katella Avenue, Suite 250, Cypress, CA 90630

(Address of principal executive offices, including zip code)

(714) 462-4603

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	KSHB	OTCQX

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ☐ No ☒

The number of outstanding shares of the Registrant’s common stock as of July 7, 2020 was 125,576,568 shares.

KUSHCO HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2020

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of May 31, 2020 (Unaudited) and August 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31, 2020 and May 31, 2019 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended May 31, 2020 and May 31, 2019 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 2020 and May 31, 2019 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	28
Item 4.	Controls and Procedures	28
Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES		31

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

KUSHCO HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands)

(Unaudited)

	May 31, 2020		August 31, 2019
ASSETS
Current assets:
Cash	$	11,088	$	3,944
Accounts receivable, net	11,162		25,972
Inventory, net	24,048		43,768
Prepaid expenses and other current assets	15,655		12,209
Total current assets	61,953		85,893
Goodwill	52,267		52,267
Intangible assets, net	2,393		3,103
Property and equipment, net	9,296		11,054
Other assets	9,759		6,917
Total Assets	$	135,668	$	159,234
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, net	$	5,497	$	10,907
Customer deposits	4,217		2,992
Accrued expenses and other current liabilities	10,424		6,468
Line of credit	—		12,261
Total current liabilities	20,138		32,628
Long-term liabilities:
Notes payable	24,084		18,975
Warrant liability	2,009		5,444
Other non-current liabilities	4,562		833
Total long-term liabilities	30,655		25,252
Total liabilities	50,793		57,880
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.001 par value, 265,000 shares authorized, 119,933 and 90,041 shares issued and outstanding, respectively	120		90
Additional paid-in capital	218,117		164,258
Accumulated deficit	(133,362)		(62,994)
Total stockholders' equity	84,875		101,354
Total liabilities and stockholders' equity	$	135,668	$	159,234

The accompanying notes are an integral part of the condensed consolidated financial statements.

KUSHCO HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Net revenue	$	22,264	$	41,486	$	87,369	$	101,982
Cost of goods sold	19,892		34,090		86,634		86,834
Gross profit	2,372		7,396		735		15,148
Operating expenses:
Selling, general and administrative	12,719		20,719		60,977		52,032
Gain on disposition of assets	—		—		—		(1,254)
Change in fair value of contingent consideration	—		2,961		—		(2,247)
Restructuring costs	952		—		8,253		—
Total operating expenses	13,671		23,680		69,230		48,531
Loss from operations	(11,299)		(16,284)		(68,495)		(33,383)
Other income (expense):
Change in fair value of warrant liability	(1,160)		6,254		3,435		7,309
Change in fair value of equity investment	(9)		(71)		(1,100)		(663)
Interest expense	(1,487)		(474)		(4,594)		(1,452)
Other income (expense), net	468		(10)		386		110
Total other income (expense)	(2,188)		5,699		(1,873)		5,304
Loss before income taxes	(13,487)		(10,585)		(70,368)		(28,079)
Income tax expense	—		(13)		—		(13)
Net loss	$	(13,487)	$	(10,598)	$	(70,368)	$	(28,092)
Net loss per share:
Basic net loss per common share	$	(0.11)	$	(0.12)	$	(0.64)	$	(0.34)
Diluted net loss per common share	$	(0.11)	$	(0.19)	$	(0.64)	$	(0.42)
Basic weighted average number of common shares outstanding	119,574		88,286		110,440		83,338
Diluted weighted average number of common shares outstanding	119,574		88,377		110,440		83,535

The accompanying notes are an integral part of the condensed consolidated financial statements.

KUSHCO HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares Issued	Amount
Balances at August 31, 2019	90,041	$	90	$	164,258	$	(62,994)	$	101,354
Stock-based compensation	99	—		3,189		—		3,189
Stock sold to investors, net of offering costs	17,198	17		27,362		—		27,379
Stock issued for acquisitions	23	—		—		—		—
Net loss	—	—		—		(12,506)		(12,506)
Balances at November 30, 2019	107,361	$	107	$	194,809	$	(75,500)	$	119,416
Stock-based compensation	89	—		3,141		—		3,141
Issuance of restricted stocks	15	—		—		—		—
Stock sold to investors	10,000	10		14,706		—		14,716
Stock issued for equity investment	1,653	2		2,526		—		2,528
Net loss	—	—		—		(44,375)		(44,375)
Balances at February 29, 2020	119,118	$	119	$	215,182	$	(119,875)	$	95,426
Stock-based compensation	353	—		2,936		—		2,936
Issuance of restricted stocks	462	1		(1)		—		—
Net loss	—	—		—		(13,487)		(13,487)
Balances at May 31, 2020	119,933	$	120	$	218,117	$	(133,362)	$	84,875

	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares Issued	Amount
Balances at August 31, 2018	78,273	$	78	$	104,918	$	(23,358)	$	81,638
Stock option exercises	281	1		41		—		42
Stock-based compensation	5	—		2,297		—		2,297
Net loss	—	—		—		(8,579)		(8,579)
Balances at November 30, 2018	78,559	$	79	$	107,256	$	(31,937)	$	75,398
Stock option exercises	89	—		—		—		—
Stock-based compensation	125	—		3,178		—		3,178
Stock sold to investors, net of offering costs	9,077	9		41,584		—		41,593
Stock issued for acquisition of Hybrid	162	—		140		—		140
Net loss	—	—		—		(8,915)		(8,915)
Balances at February 28, 2019	88,012	$	88	$	152,158	$	(40,852)	$	111,394
Stock option exercises	—	—		—		—		—
Stock-based compensation	328	1		2,740		—		2,741
Stock issued for acquisition of Hybrid	500	—		—		—		—
Net loss	—	—		—		(10,598)		(10,598)
Balances at May 31, 2019	88,840	$	89	$	154,898	$	(51,450)	$	103,537

The accompanying notes are an integral part of the condensed consolidated financial statements.

KUSHCO HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	For the Nine Months Ended
	May 31, 2020		May 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(70,368)	$	(28,092)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3,259		1,711
Amortization of debt discount	3,902		—
Provision for bad debt	10,421		2,313
Provision for sales returns	30		540
Inventory obsolescence	2,218		—
Provision for inventory reserve	14,619		2,133
Loss (gain) on disposal of assets	26		(1,254)
Gain on termination of leases	(798)		—
Impairment of assets	6,895		—
Change in fair value of equity investment	1,100		663
Stock compensation expense	11,074		8,839
Change in fair value of warrant liability	(3,435)		(7,309)
Change in fair value of contingent consideration	—		(2,247)
Changes in operating assets and liabilities:
Accounts receivable	6,854		(8,756)
Inventory	5,101		(43,446)
Prepaid expenses and other current assets	(7,854)		(1,632)
Other non-current assets	498		(706)
Accounts payable	(5,813)		13,278
Customer deposits	1,225		2,253
Accrued expenses and other current liabilities	1,600		4,232
Other non-current liabilities	(752)		—
Net cash used in operating activities	(20,198)		(57,480)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment, and intangibles	(4,317)		(5,420)
Net cash used in investing activities	(4,317)		(5,420)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital leases	(86)		(105)
Proceeds from notes payable	1,900		19,935
Proceeds from stock option exercises	—		42
Proceeds from issuance of common stock	42,095		41,593
Proceeds from line of credit	76,325		94,808
Repayments on line of credit	(88,575)		(94,610)
Net cash provided by financing activities	31,659		61,663
NET INCREASE (DECREASE) IN CASH	7,144		(1,237)
CASH AT BEGINNING OF YEAR	3,944		13,467
CASH AT END OF YEAR	$	11,088	$	12,230
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest	$	624	$	959
NON-CASH INVESTING AND FINANCING ACTIVITIES
Services prepaid for in common stock	$	646	$	1,277
Accrued and unpaid amounts for purchase of property & equipment	$	403	$	356
Stock issuance for acquisition of Hybrid	$	—	$	141
Shares issued in exchange for equity investment in Xtraction Services	$	2,528	$	—
Fair value of shares received from sale of assets	$	—	$	1,791

The accompanying notes are an integral part of the condensed consolidated financial statements.

KUSHCO HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts)

(Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the activity of KushCo Holdings, Inc. (the “Company”) and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the condensed consolidated financial statements for the interim periods presented herein, but are not necessarily indicative of operating results to be achieved for full fiscal years or other interim periods. The condensed consolidated balance sheet as of August 31, 2019 was derived from the audited financial statements as of that date but does not include all disclosures as required by GAAP. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year then ended and filed with the SEC on November 12, 2019.

References to amounts in these notes to condensed consolidated financial statements are in thousands, except per share amounts, unless otherwise specified.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period.

Significant estimates relied upon in preparing these condensed consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.

Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus, trade receivables do not bear interest. Trade accounts receivables are periodically evaluated for collectability based on the customer's past credit history and current financial condition. The Company’s net accounts receivable balance was $11,162 and $25,972 as of May 31, 2020 and August 31, 2019, respectively. The Company’s allowance for doubtful accounts was $3,660 and $1,058 as of May 31, 2020 and August 31, 2019, respectively. The increase in allowance for doubtful accounts was driven primarily by the deteriorating credit conditions in California exhibited by the Company’s customers in this market, which have significantly impacted the Company’s ability to collect, in part or in full, amounts owed by these customers. The Company’s sales return reserve was $506 and $477 as of May 31, 2020 and August 31, 2019, respectively, and is included in “Accounts receivable, net” on the Company’s condensed consolidated balance sheet.

Inventory

Inventories are stated at the lower of cost or net realizable value using the average cost method. The Company’s inventory consists of finished goods of $24,048 and $43,768 as of May 31, 2020 and August 31, 2019, respectively. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company’s prepaid inventory

was $8,429 and $7,134 as of May 31, 2020 and August 31, 2019, respectively. The Company regularly reviews inventory and, when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life. As of May 31, 2020, the Company had $11,285 of inventory reserve. As of August 31, 2019, the Company had $2,640 of inventory reserve.

Equity Investment

On January 30, 2020, the Company partnered with Xtraction Services Holding Corp (“Xtraction Services”), a provider of equipment leasing solutions to owners and operators of cannabis and hemp companies in the United States in order to provide such solutions to the Company’s network of regulated cannabis and cannabidiol (“CBD”) operators. The Company’s Chief Financial Officer, Stephen Christoffersen, has served on the board of directors for Xtraction Services since May 2019. Under the terms of its agreement with Xtraction Services, upon the closing of the transaction, the Company issued 1,653 of its common shares in exchange for 10,600 proportionate voting shares (the “XS Shares”) of Xtraction Services, the equivalent of 19.9% of Xtraction Services' market capitalization on the closing date. On January 30, 2020, the value of the Company's shares issued in exchange for the equity investment in Xtraction Services was $2,528. The Company’s investment in Xtraction Services is included in “Other assets” on the Company’s condensed consolidated balance sheet.

Net Loss Per Share

The Company computes earnings per share under Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share (“ASC 260”). Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method.

For the three and nine months ended May 31, 2020, basic and diluted weighted average shares are the same, as the Company generated a net loss for the period. The computation for the three and nine months ended May 31, 2020 does not include 11,368 options and 21,737 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

For the three and nine months ended May 31, 2019, net loss is adjusted for changes in fair value of warrants recorded as a liability (see Note 9 below) and weighted average diluted shares includes dilutive warrants. The computation of diluted net loss per share for the three and nine months ended May 31, 2019 does not include 12,662 options and 6,988 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

Revenue Recognition

The Company markets and sells a wide variety of ancillary products and services to customers operating in the regulated medical and recreational cannabis and CBD industries. These complementary products and services include compliant and custom packaging products; vape hardware; hydrocarbons and solvents; natural products; stainless steel tanks; custom branded anti-counterfeit and authentication labels; hemp trading services; and retail services focused on CBD mass distribution, industry education and compliance.

In accordance with ASC 606, Revenue from Contracts with Customers, the Company applies the following steps to recognize revenue for the sale of products that reflects the consideration to which the Company expects to be entitled to receive in exchange for the promised goods:

•Identify the contract with a customer.

•Identify the performance obligations in the contract.

•Determine the transaction price.

•Allocate the transaction price to the performance obligations in the contract.

•Recognize revenue when the Company satisfies a performance obligation.

Advertising

The Company conducts advertising for the promotion of its products and services. In accordance with ASC subtopic 720-35-25 (“ASC 720”), advertising costs are charged to expense when incurred. Advertising costs were $21 and $207 for the three

months ended May 31, 2020 and May 31, 2019, respectively. Advertising costs were $199 and $877 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The ASU removes, modifies, and adds certain disclosure requirements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine its impact it may have on its financial statements.

In January 2020, the FASB issued ASU 2020-1, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-1made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Update on COVID-19

On March 11, 2020, the World Health Organization ("WHO") recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, temporary store closures, and wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 has significantly curtailed global economic activity, including in the regulated cannabis and CBD industries in which the Company operates.

While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted at this time.

NOTE 2 - CONCENTRATIONS OF RISK 

Supplier Concentrations

The Company purchases inventory from various suppliers and manufacturers. For the nine months ended May 31, 2020 and May 31, 2019, the Company had one vendor which accounted for approximately 33% and 42%, respectively, of total inventory purchases. As of May 31, 2020, there were two vendors in the aggregate that represented approximately 23% of accounts payable. As of May 31, 2019, there were two vendors that represented approximately 42% of accounts payable.

Customer Concentrations

During the nine months ended May 31, 2020, no customer represented over 10% of the Company’s revenue. For the nine months ended May 31, 2019, the Company had one customer that represented approximately 10% of the Company’s revenues. As of May 31, 2020, there were two customers in aggregate, that represented approximately 47% of accounts receivable. As of May 31, 2019, there was one customer that represented 24% of accounts receivable.

NOTE 3 – RELATED-PARTY TRANSACTIONS

The Company sells certain products and supplies to two related parties. Sales recognized during the three months ended May 31, 2020 and May 31, 2019 from the related parties totaled $113 and $40, respectively. Sales recognized during the nine months ended May 31, 2020 and May 31, 2019 from the related parties totaled $1,299 and $99, respectively. Total accounts receivable from related parties was $755 and $465 as of May 31, 2020 and August 31, 2019, respectively. Further, the Company rents certain warehouse equipment from a related party. No rental payments were made from the related party during the three months ended May 31, 2020. During the three months ended May 31, 2019, total rental payments of $112 were made from the related party. During the nine months ended May 31, 2020 and May 31, 2019, total rental payments of $231 and $210, respectively, were made to the related party.

NOTE 4 - PROPERTY AND EQUIPMENT

The major classes of fixed assets consist of the following:

	May 31, 2020		August 31, 2019
Machinery and equipment	$	6,116	$	4,430
Vehicles	540		603
Office Equipment	3,395		3,232
Leasehold improvements	1,963		3,296
Construction in progress	661		1,930
	12,675		13,491
Accumulated Depreciation	(3,379)		(2,437)
	$	9,296	$	11,054

Depreciation expense was $990 and $397 for the three months ended May 31, 2020 and May 31, 2019, respectively. Depreciation expense was $2,549 and $965 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consist of the following:

		As of May 31, 2020						As of August 31, 2019
Description	Weighted Average Estimated Useful Life	Gross Carrying Value		Accumulated Amortization		Net Amount		Gross Carrying Value		Accumulated Amortization		Net Amount
Trade name	6 years	2,600		(1,336)		1,264		2,600		(1,011)		1,589
Non-compete agreement	4 years	2,370		(1,241)		1,129		2,370		(856)		1,514
		$	4,970	$	(2,577)	$	2,393	$	4,970	$	(1,867)	$	3,103

Amortization expense was $237 for the three months ended May 31, 2020 and 2019. Amortization expense was $710 and $746 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

The following table summarizes the remaining estimated amortization of definite-lived intangible assets as of May 31, 2020:

For the year ended August 31,
2020 (remaining three months)	$	237
2021	881
2022	747
2023	528
	$	2,393

NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	May 31, 2020		August 31, 2019
Accrued compensation	2,532		3,485
Sales tax payable	745		1,047
Lease liability	1,605		—
Other accrued expenses	5,542		1,936
	$	10,424	$	6,468

NOTE 7 – LEASES

The Company adopted ASC 842 “Leases” (“ASC 842”) effective September 1, 2019 utilizing the modified retrospective approach for adoption for all leases that existed at or are commenced after the date of initial application with an option to use certain practical expedients. The package of practical expedients allowed the Company to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases. The Company also used (i) hindsight when evaluating contractual lease options, (ii) the practical expedient that allows lessees to treat lease and non-lease components of leases as a single lease component, (iii) the portfolio approach which allows similar leased assets to be grouped and accounted for together, and (iv) the short-term lease for leases with a term of 12 months or less.

The adoption of ASC 842 had a material impact on the condensed consolidated balance sheet due to the recognition of Right of Use (“ROU”) assets and lease liabilities. The adoption of this ASC did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows. The Company did not recognize a material cumulative effect adjustment to the opening balance sheet retained earnings on September 1, 2019. Because the modified retrospective approach was elected, the ASU was not applied to periods prior to adoption and did not have an impact on previously reported results. At adoption, the Company recognized operating lease ROU assets and lease liabilities that reflect the present value of the future payments. As the rate implicit in the lease could not be determined for any of the Company’s leases, an estimated incremental borrowing rate of 10.7%, which reflects the interest rate the Company would pay to borrow funds over a similar term and in a similar economic environment, was used to determine the present value of lease payments. Based on the impact of ASC 842 on the lease population, the Company recorded $7.6 million in lease liabilities and $6.8 million for ROU assets based upon the lease liabilities adjusted for deferred rent. ROU assets are included in “Other assets” and lease liabilities are included in “Accrued expenses and other current liabilities” and “Other non-current liabilities” on the Company’s condensed consolidated balance sheet.

The Company determines if an arrangement is a lease at inception. The Company leases its facilities and certain office equipment under operating leases which expire on various dates through 2026. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying asset, together with any options to extend that the Company is reasonably certain to exercise.

Lease Liabilities

Lease liabilities as of May 31, 2020 consist of the following:

Current portion of lease liabilities	$	1,605
Long term lease liabilities, net of current portion	4,562
Total lease liabilities	$	6,167

Aggregate lease maturities as of May 31, 2020 are as follows:

Year ended August 31,
2020 (remaining three months)	$	647
2021	2,054
2022	1,968
2023	1,362
2024	764
Thereafter	579
Total minimum lease payments	7,374
Less imputed interest	(1,207)
Total lease liabilities	$	6,167

Rent expense was $590 and $2,279, respectively, for the three and nine months ended May 31, 2020. At May 31, 2020, the leases had a weighted average remaining lease term of 3.7 years and a weighted average discount rate of 8.5%. Rent expense for the three and nine months ended May 31, 2019 was $720 and $2,226, respectively, under ASC 840, the predecessor to ASC 842.

NOTE 8 – DEBT

Monroe Revolving Credit Facility

On August 21, 2019, the Company and its subsidiaries (collectively, the “Borrowers”) entered into a secured asset based revolving credit facility (the “Monroe Revolving Credit Facility”), with an aggregate amount not to exceed $35.0 million outstanding at any time, with Monroe Capital Management Advisors, LLC (“Monroe”), as collateral agent and administrative agent, and the various lenders party thereto. The Monroe Revolving Credit Facility also includes an accordion feature that permits the Company to increase the available revolving commitments under the Monroe Revolving Credit Facility by up to an additional $15.0 million, subject to satisfaction of certain conditions. The Monroe Revolving Credit Facility has a 5-year term which matures on August 21, 2024 and is secured by a first priority lien on substantially all of the assets of the Borrowers.

The Monroe Revolving Credit Facility contains customary representations and warranties, affirmative and negative covenants, including a financial covenant requiring certain minimum availability, and events of default. As of May 31, 2020, there was no balance outstanding under the facility. As of August 31, 2019, the outstanding balance under the facility was $12.3 million.

The Company incurred closing costs associated with the Monroe Revolving Credit Facility in the amount of $2,602, which were deferred and amortized over the 5-year term of the Monroe Revolving Credit Facility on a straight-line basis. As of May 31, 2020, unamortized debt issuance costs of $2,194 are included in “Other assets.” Interest expense and amortization of debt discount, associated with the Monroe Revolving Credit Facility during the three months ended May 31, 2020 amounted to $73 and $154, respectively. Interest expense and amortization of debt discount, associated with the Monroe Revolving Credit Facility during the nine months ended May 31, 2020 amounted to $528 and $461, respectively.

Monroe Warrants

On August 21, 2019, the Company entered into a subscription agreement with Monroe, pursuant to which the Company issued to Monroe a warrant to purchase up to 500 shares of its common stock (the “Monroe Warrant”) at an exercise price of $4.25 per share. The Monroe Warrant has a 5-year term and as such will expire on August 21, 2024. Amortization expense for the three and nine months ended May 31, 2020 was $50 and $148, respectively.

Long-term Debt

On April 29, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which the Company issued and sold a senior note (the “Original Note”) to the Investor in a private placement offering in the aggregate principal amount of $21.3 million with an original issue discount of $1.3 million, and received net proceeds of $20.0 million. The Original Note was a senior unsecured obligation, and unless earlier redeemed, was scheduled to mature on October 30, 2020. The Original Note did not bear interest, except upon the occurrence of an event of default.

On August 21, 2019, the Company entered into an exchange agreement (the “Exchange Agreement”) with the Investor in order to amend and waive certain provisions of the Purchase Agreement and the Original Note and to exchange the Original Note for (i) a new senior note (the “Amended Senior Note”) for the same aggregate principal amount as the Original Note and (ii) a warrant to purchase up to 650 shares of its common stock at an exercise price of $4.25 per share. The warrant has an expiration date of August 21, 2024 and has not been exercised as of May 31, 2020. As of August 21, 2019, the warrant was reclassified from a derivative liability to equity with a corresponding adjustment to additional paid-in capital.

Similar to the terms of the Original Note, the Amended Senior Note was set to mature on October 30, 2020, at which time the Company was to pay the Investor an amount in cash representing 120% of all outstanding principal, less original issue discount, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Amended Senior Note did not bear interest except upon the occurrence of an event of default.

On November 8, 2019, the Company entered into a Second Exchange Agreement (“Second Exchange Agreement”) with the Investor, pursuant to which the Company amended the Amended Senior Note (as amended, the “Second Amended Senior Note”). Pursuant to the terms of the Second Amended Senior Note, the maturity date of the Second Amended Senior Note was extended to April 29, 2021 and the aggregate principal amount of the Second Amended Senior Note was increased to approximately $24.0 million and the original issue discount was increased to $1.5 million. Upon maturity, the Company was to pay the Investor an amount in cash representing 120% of all outstanding principal, less original issue discount, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Second Amended Senior Note did not bear interest, except upon the occurrence of an event of default.

See Note 14 below for a description of the Third Exchange Agreement entered into by the Company and the Investor subsequent to May 31, 2020.

PPP Loan

On April 30, 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the “PPP Lender”), for an aggregate principal amount of approximately $1.9 million (the "PPP Loan"). The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration. The principal amount of the PPP Loan is subject to forgiveness under the Paycheck Protection Program upon the Company’s request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company. The Company intends to apply for forgiveness of the PPP Loan with respect to these covered expenses. To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to pay interest on the PPP Loan at a rate of 1.0% per annum, and commencing in October 2020 principal and interest payments will be required through the maturity date in April 2022. The terms of the PPP Loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The PPP Loan may be accelerated upon the occurrence of an event of default.

NOTE 9 – WARRANT LIABILITY

In addition to the warrants described above, in June 2018, the Company issued warrants to purchase 3,750 shares of its common stock exercisable at a price per share of $5.28 (the “2018 Warrants”) to investors in a registered direct offering. The 2018 Warrants have a term of five years from the date of issuance. Pursuant to ASC Topic 815, the initial fair value of the 2018 Warrants of $15,350 was recorded as a warrant liability on the issuance date. The estimated fair values of the 2018 Warrants were computed at issuance using a Black-Scholes option pricing model.

The estimated fair value of the outstanding liabilities associated with the 2018 Warrants was $2,009 and $5,444 as of May 31, 2020 and August 31, 2019, respectively.

Increases or decreases in fair value of the Company's liability associated with the 2018 Warrants are included as a component of “Other expense” in the accompanying condensed consolidated statements of operations for the respective period. The changes to the liability associated with the 2018 Warrants resulted in an increase of $1,160 and decrease of $3,435 in liability and a corresponding loss and gain for the three and nine months ended May 31, 2020, respectively. The changes to the liability associated with the 2018 Warrants resulted in a decrease of $6,254 and $7,309 in liability and a corresponding gain for the three and nine months ended May 31, 2019, respectively.

The estimated fair value of the 2018 Warrants was computed as of May 31, 2020 using the Black Scholes model with the following assumptions: stock price of $1.19, volatility of 119.5%, risk-free rate of 0.22%, annual dividend yield of 0% and expected life of 3.0 years.

NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements are performed in accordance with the guidance provided by ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, equity investments, accounts receivable, accounts payable and accrued liabilities and obligations approximate their fair values based on their short-term nature. The carrying amount of the Company’s long-term notes payable approximates its fair value based on interest rates available to the Company for similar debt instruments and similar remaining maturities.

The Company accounts for its investment in Smoke Cartel, Inc. (“Smoke Cartel”) at fair value. On September 21, 2018, Smoke Cartel and the Company entered into an agreement to sell Rowl-Uh-Bowl (the “RUB”) web domain and inventory related to this product line and in exchange, received 1,410 shares of Smoke Cartel common stock. The fair value of the Company’s investment as of August 31, 2019 and May 31, 2020 was based upon the closing price of Smoke Cartel's common stock on each respective date. The investment was classified as a Level 2 financial instrument.

The Company accounts for its investment in Xtraction Services at fair value. The fair value of the Company’s investment at May 31, 2020 was based upon the closing price of Xtraction Services' common stock on each respective date. The investment was classified as a Level 2 financial instrument.

In connection with the Company’s registered direct offering in June 2018, the Company issued the 2018 Warrants, which are accounted for as a warrant liability (see Note 9 above.) The estimated fair value of the liability is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The estimated fair value of the contingent consideration related to the Company’s business combinations is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 2 assets and the Level 3 liabilities:

	Fair Value at May 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	2,060	$	—	$	2,060	$	—
Liabilities:
Warrant liability	$	2,009	$	—	$	—	$	2,009

	Fair Value at August 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	592	$	—	$	592	$	—
Liabilities:
Warrant liability	$	5,444	$	—	$	—	$	5,444

The following table reflects adjustments to the estimated fair value of the Company’s warrant liability with respect to the 2018 Warrants measured using Level 3 inputs:

	Warrant Liability
As of August 31, 2019	$	5,444
Adjustments to estimated fair value	(3,204)
As of November 30, 2019	2,240
Adjustments to estimated fair value	(1,391)
As of As of February 29, 2020	849
Adjustments to estimated fair value	1,160
As of May 31, 2020	$	2,009

	Warrant Liability
As of August 31, 2018	$	14,430
Adjustments to estimated fair value	216
As of November 30, 2018	14,646
Adjustments to estimated fair value	(1,271)
As of February 28, 2019	13,375
Adjustments to estimated fair value	(5,965)
As of May 31, 2019	$	7,410

The following table reflects the changes in fair value of the Company’s contingent consideration payable measured using Level 3 inputs:

	Contingent Consideration Payable
As of August 31, 2018	$	5,488
Change in fair value	394
As of November 30, 2018	5,882
Change in fair value	(5,602)
Cash payments	(140)
Settled in shares- Hybrid	(140)
As of As of February 28, 2019	—
Change in fair value	2,961
As of May 31, 2019	$	2,961

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company’s authorized preferred stock is 10,000 shares with a par value of $0.001. As of May 31, 2020, and August 31, 2019, there were no shares of preferred stock issued or outstanding.

Common Stock

The Company’s authorized common stock is 265,000 shares with a par value of $0.001. As of May 31, 2020, and August 31, 2019, there were 119,933 and 90,041 shares issued and outstanding, respectively.

On September 26, 2019, the Company entered into purchase agreements with certain accredited investors pursuant to which the Company issued and sold an aggregate of 17,198 units, with each unit consisting of one share of its common stock and a warrant to purchase half a share of its common stock in a registered direct offering (the “September 2019 Offering”). The purchase price for a unit was $1.75. The closing of the September 2019 Offering occurred on September 30, 2019 and resulted in aggregate gross proceeds to the Company of approximately $30.1 million. The aggregate net proceeds to the Company from the September 2019 Offering, after deducting the placement agent fees and other offering expenses, was approximately $27.4 million. Subject to certain ownership limitations, the warrants were immediately exercisable at an exercise price equal to $2.25 per share of common stock. The warrants are exercisable for five years from the date of issuance.

On February 6, 2020, the Company entered into purchase agreements with certain accredited investors pursuant to which the Company issued and sold an aggregate of 10,000 units, with each unit consisting of one share of its common stock and a warrant to purchase half a share of its common stock in a registered direct offering (the “February 2020 Offering”). The purchase price for a unit was $1.60. The closing of the February 2020 Offering occurred on February 10, 2020 and resulted in aggregate gross proceeds to the Company of approximately $16.0 million. The aggregate net proceeds from the February 2020 Offering, after deducting the placement agent fees and other offering expenses, was approximately $14.6 million. Subject to certain ownership limitations, the warrants were immediately exercisable at an exercise price equal to $2.00 per share of common stock. The warrants are exercisable for five years from the date of issuance.

Share-based Compensation

The Company recorded total stock-based compensation expense of $2,985 and $2,667 for the three months ended May 31, 2020 and May 31, 2019, respectively, and $11,074 and $8,839 for the nine months ended May 31, 2020 and May 31, 2019, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. Stock-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of operations.

On September 1, 2019, the Company adopted Accounting Standards Update 2018-7 which addresses several aspects of the accounting for non-employee share-based payment transactions and expands the scope of ASC 718, Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Under the simplified standard, non-

employee options will be valued once at the date of grant. At adoption, all awards without established measurement dates were revalued one final time and did not have a material impact on the condensed consolidated financial statements.

Stock Incentive Plan

The Company’s 2016 Stock Incentive Plan (the “Plan”) was adopted on February 9, 2016. The Plan authorizes the issuance of up to 18,000 shares of common stock in the form of stock-based awards to the Company’s employees and directors. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant and have 10 years contractual terms. The option awards generally vest over three years subject to the recipient’s continuous service.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of its stock price over the expected option term, expected risk-free interest rate over the expected option term, and expected dividend yield rate over the expected option term. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC 718. These amounts are estimates only and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended May 31, 2020 and May 31, 2019:

	Nine Months Ended
	May 31, 2020	May 31, 2019
Expected term in years	5.3 – 5.9	1-3
Expected volatility	64% – 120%	69% – 87%
Risk-free interest rate	0.3% – 1.7%	2.3% – 3.0%
Expected dividend yield	0.0%	0.0%

The expected term of stock options granted during the nine months ended May 31, 2020 and May 31, 2019 is based on management's judgement and reflects expected exercise patterns. The expected volatility of these stock options is based on management’s analysis of historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life of these options was increased, a higher expected volatility was used, or if the expected dividend yield increased.

The following table summarizes the Company's stock option activity during the nine months ended May 31, 2020:

	Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance Outstanding, August 31, 2019	14,761	$	4.89	9.0	$	3,192
Granted	3,667	2.24
Exercised	(9)	2.06			$	14
Forfeited	(7,051)	4.74
Balance Outstanding, May 31, 2020	11,368	$	4.10	8.4	$	358
Vested and expected to vest at May 31, 2020	10,187	4.13		8.3	$	285
Exercisable, May 31, 2020	5,998	$	4.40	7.9	$	26

Stock compensation expense related to stock options was $7,348 and $5,740 for the nine months ended May 31, 2020 and May 31, 2019, respectively. The weighted-average grant-date fair value of options granted during the nine months ended May 31, 2020 and May 31, 2019, was $1.39 and $2.59, respectively.

As of May 31, 2020, there was $12,482 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 1.7 years.

Restricted Stock and Restricted Stock Units

During the nine months ended May 31, 2020, the Company awarded 533 shares of restricted stock to consultants in exchange for $662 of services rendered.

During the nine months ended May 31, 2019, the Company issued 295 shares of restricted stock to consultants in exchange for $377 of services rendered and $1,277 of prepaid services, for a total of $1,654. The prepaid services are included in prepaid expenses on the condensed consolidated balance sheet as of May 31, 2019.

Stock-based compensation expense related to restricted stock awards was $3,726 and $3,099, respectively, for the nine months ended May 31, 2020 and May 31, 2019.

During the nine months ended May 31, 2020, the Company awarded 174 shares of restricted stock units to directors for serving on the board of directors.

As of May 31, 2020, $2,329 of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted average period of 1.3 years.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Other Commitments

In the ordinary course of business, the Company may enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms. The Company had no such agreements as of May 31, 2020.

Litigation

The Company may be subject to legal proceedings and claims that arise in the ordinary course of its business.

During fiscal 2019, lawsuits were filed in California federal and state court by various purported shareholders against, the Company, each of the current members of the Company’s Board of Directors, and certain of the Company’s current and former officers, alleging, among other things, certain federal securities law violations and/or related breaches of fiduciary duties in connection with the Company’s April 2019 restatement of certain prior period financial statements. In general, the lawsuits assert the same or similar allegations, including that the defendants artificially inflated the Company’s securities prices by knowingly making materially false and misleading statements and omissions to the investing public about the Company’s financial statements, business, operations, management, and internal controls. These lawsuits are described below.

May v. KushCo Holdings, Inc., et al. Filed April 30, 2019. Case No. 8:19-cv-00798-JLS-KES, U.S. District Court for the Central District of California. This putative shareholder class action against the Company and certain of its current and former officers alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and seeks unspecified compensatory damages and other relief on behalf of a class of purchasers of the Company’s securities between July 13, 2017 and April 9, 2019, inclusive. In September 2019, the Court appointed co-lead plaintiffs and co-lead counsel for the plaintiffs. The lead plaintiffs’ amended complaint was filed in November 2019. In February 2020, the Company moved to dismiss the amended complaint. The motion is pending. The Company intends to vigorously defend itself against these claims.

Salsberg v. Kovacevich, et al. Filed May 24, 2019. Case No. 8:19-cv-00998-JLS-KES, U.S. District Court for the Central District of California and Neysmith v. Baum, et al. Filed May 31, 2019. Case No. 8:19-cv-01070-JLS-KES, U.S. District Court for the Central District of California. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and disgorgement of profits, benefits, and compensation obtained by the defendants from the alleged conduct, to be paid to the Company. In September 2019, the Court consolidated these cases. In December 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Savage v. Kovacevich, et al. Filed June 14, 2019. Case No. 30-2019-01077191-CU-MC-NJC, Superior Court of California, County of Orange. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and unspecified damages and restitution from the defendants, to be paid to the Company. In August 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Bruno, et al. v. Kovacevich, et al. Filed September 26, 2019. Case No. A-19-802660-C, Eighth Judicial District Court of the State of Nevada and Majchrzak v. Kovacevich, et al. Filed October 2, 2019. Case No. A-19-902945-B, First Judicial District Court of the State of Nevada. These purported shareholder derivative actions against certain current and former directors and officers allege, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant in each action and the plaintiffs seek, among other things, equitable relief and unspecified damages from the defendants, to be paid to the Company. In May 2020, the Company accepted service of the complaints, and the plaintiffs have indicated that they intend to move to stay each action.

NOTE 13 – 2020 PLAN & RESTRUCTURING CHARGES

During the second quarter of fiscal 2020, the Company adopted a comprehensive strategic plan (the “2020 Plan”) to more effectively execute the Company’s strategy of focusing its resources on more established, financially stable, and creditworthy customers (namely multi-state operators, licensed producers, and leading brands). In connection with the 2020 Plan, the Company began implementing a restructuring process that seeks to rationalize all aspects of its operations by, among other things, significantly reducing its overhead, implementing tighter expense controls, consolidating its warehouses, reducing its inventory, and drastically altering its sales strategy to focus more on these customers. The Company believes that this strategic shift and associated restructuring should result in a better forecast of demand, reduction of inventory and warehouse space, improved collections and cash flow, and potential revenue upside from these customers’ continued expansion and consolidation in the marketplace.

The Company has completed, or is in the process of completing, the following restructuring activities in connection with the 2020 Plan:

•Severance: The Company is in the process of implementing a more efficient and automated approach to serving a smaller more targeted group of customers, which will require substantially fewer dedicated sales representatives, project managers, warehouse personnel, and other related personnel. As part of this process, the Company determined that certain positions at the Company were no longer essential to the execution of the Company’s strategy going forward. As a result, the Company underwent reductions in force to right-size and better align its workforce with this new strategy. During the second quarter of fiscal 2020, the Company terminated 28 employees, and incurred $379 in severance-related restructuring costs. During the third quarter of fiscal 2020, the Company terminated 65 employees, and incurred $800 in severance-related restructuring costs.

•Facility-Related Lease Termination and Exiting Costs: As a result of the Company’s decision to discontinue nearly all of its stock inventory, the Company determined that it no longer needs the vast majority of its current warehouse space, and is currently in the process of negotiating with its landlords to terminate or sublease and exit the impacted warehouses. During the third quarter of fiscal 2020, the Company terminated leases and vacated its Las Vegas, Nevada, Santa Rosa, California, Osage, Colorado facilities and subleased its Garden Grove, California facility. The Company is planning to vacate additional facilities throughout the remainder of fiscal 2020 in order to consolidate its warehouse footprint. During the third quarter of fiscal 2020, the Company incurred $0.2 million in restructuring exit cost.

•Asset Impairment: With the Company’s planned facility closures, the Company has determined that the fair value of its fixed assets at these closing facilities is now below their carrying value, and that an impairment has occurred. The Company also determined that its product molds and tooling are no longer necessary assets, given its shift to focus exclusively on custom and best-selling stock inventory, creating an additional need for impairment. As a result, the Company recognized a total impairment charge related of approximately $3.9 million related to these fixed assets during the second quarter of its fiscal 2020. In addition, because of the Company’s decision to consolidate its warehouses, the Company determined that it will incur impairment charges to its ROU assets. Based on internal calculations, the Company recognized impairment charges related to these assets of $3.0 million during the second quarter of its fiscal 2020.

The Company expects to incur a total of $9.5 million in restructuring charges upon the completion of the 2020 Plan, which represents the Company’s best estimate as of May 31, 2020. The 2020 Plan is expected to be completed by the end of fiscal 2020. The recognition of restructuring charges requires that the Company make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reductions of workforce and facility, ROU and asset impairment costs. At the end of each reporting period, the Company will evaluate the remaining accrued balance to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed plans. The following table reflects the movement of activity of the restructuring reserve for the six months ended May 31, 2020:

	Severance related costs		Facility, ROU and asset impairment		Facility Exit Cost		Total
Balance at December 1, 2019	$	—	$	—	$	—	$	—
Provisions/Additions	1,182		6,895		176		8,253
Utilized/Paid	(1,002)		(6,895)		(176)		(8,073)
Balance at May 31, 2020	$	180	$	—	$	—	$	180

Expenses incurred under the 2020 Plan during the three and nine months ended May 31, 2020 are included within “Restructuring costs” in the condensed consolidated statements of operations.

NOTE 14 – SUBSEQUENT EVENT

Third Exchange Agreement and Third Exchange Note

On June 9, 2020, the Company entered into a Third Exchange Agreement (the “Third Exchange Agreement”) with the Investor in order to (x) amend and waive certain provisions of the Purchase Agreement and the Second Amended Senior Note, and (y) exchange the Second Amended Senior Note without any cash consideration for (i) a new senior note in the aggregate principal amount of $22.0 million (the “Third Amended Senior Note”) and (ii) 5,347,594 shares of the Company’s common stock (the “Exchange Shares”).

Similar to the terms of the Second Amended Senior Note, the Third Amended Senior Note will mature on April 29, 2021, subject to the Investor’s right to extend such maturity date. Upon maturity, the Company must pay the Investor an amount in cash representing the aggregate outstanding principal, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Third Amended Senior Note will not bear interest except upon the occurrence (and during the continuance) of an Event of Default (as such term is defined in the Third Amended Senior Note), in which case the Third Amended Senior Note will bear interest at a rate of 18.0% per annum (the “Default Rate”).

The Third Amended Senior Note is redeemable by the Company at any time after the issuance in an amount equal to the outstanding principal and any accrued interest or late charges. The Third Amended Senior Note includes customary affirmative and negative covenants, including a limitation on the Company’s ability to incur additional indebtedness, subject to certain permitted exceptions. The Third Amended Senior Note includes customary events of default including, among others, payment defaults, breach of covenant defaults, bankruptcy and insolvency defaults, cross defaults with certain indebtedness, a change of control default, judgment defaults, and inaccuracies of representations and warranties defaults. Similar to the terms of the Original Note, the Investor may require the Company to redeem, upon the occurrence of an Event of Default, all or a portion of the Third Amended Senior Note at a redemption premium of 135% of the outstanding principal and any accrued interest or late charges. Similar to the terms of the Original Note, any amount of principal or other amounts due to the Investor under the Purchase Agreement or the Third Amended Senior Note that is not paid when due (except to the extent such amount is simultaneously accruing interest at the Default Rate) will result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 18.0% per annum from the date such amount was due until the same is paid in full.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, all amounts herein are expressed in thousands, except per share amounts.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.

The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

•Trends affecting our financial condition, results of operations or future prospects, including the impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic;

•Our business and growth strategies;

•Our financing plans and forecasts;

•The factors that we expect to contribute to our success and our ability to be successful in the future;

•Our business model and strategy for realizing positive results as sales increase;

•Competition, including our ability to respond to such competition and its expectations regarding continued competition in the market in which we compete;

•Our ability to meet our projected operating expenditures and the costs associated with development of new projects;

•The impact of new accounting pronouncements on our financial statements;

•Whether our cash flows from operating activities will be sufficient to meet our operating expenditures;

•Our market risk exposure and efforts to minimize risk;

•Regulations, including tax law and practice, federal and state laws governing the cannabis and CBD industries, and tariff legislation;

•The outcome of various tax audits and assessments, including appeals thereof, timing of resolution of such audits, our estimates as to the amount of taxes that will ultimately be due and payable and the impact of these audits on our financial statements;

•Our overall outlook including all statements under Management’s Discussion and Analysis of Financial Condition and Results of Operations;

•That estimates and assumptions made in the preparation of financial statements in conformity with GAAP may differ from actual results; and

•Our expectations as to future financial performance, cash and expense levels and liquidity sources.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance. A more detailed description of risk factors that may affect our operating results can be found in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019 filed with the SEC on November 12, 2019, and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as

required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Overview

KushCo Holdings, Inc. (formerly known as Kush Bottles, Inc.) markets and sells a wide variety of ancillary products and services to customers operating in the regulated medical and adult recreational cannabis and CBD industries. Our complementary products and services include compliant and custom packaging products; vape hardware; solvents and natural products; stainless steel tanks; custom branded anti-counterfeit and authentication labels; hemp trading services, which connect buyers and sellers of hemp commodities; and retail services, which focus on CBD mass distribution services through our internal resources and partnerships with leading consumer packaged goods (“CPG”) sales agencies.

As a leader in custom and child-resistant packaging, exclusive vape products, and unique service offerings, such as our hemp trading and retail services, we serve as a “one-stop-shop” for our customers, combining creativity with compliance to provide the right solutions in various stages of the cannabis and CBD supply chain.

Our products primarily consist of bottles, jars, bags, tubes, containers, vape cartridges, vape batteries and accessories, labels and processing supplies, solvents, natural products, stainless steel tanks, and custom branded anti-counterfeit and authentication labels. We maintain relationships with a broad range of domestic and international manufacturers, which enables us to source a wide variety of products in a cost-effective manner and to pass such cost savings to our customers. This allows us to offer quick solutions to our customers and help ensure that their products will be of superior grade and made with environmentally safe materials. In addition to a complete product line, we have sophisticated labeling and customization capabilities, which allow us to add significant value to our customers’ packaging and vape hardware design processes, enabling them to turn their packaging and branding into an effective marketing tool. As more multi-state operators (“MSOs”), licensed producers (“LPs”), and leading brands seek ways to further differentiate their brands and product lines, our customization capabilities and premium customer service help us win new product opportunities with both existing and new customers. Our products are relied upon by brand owners, processors, farmers, growers, and licensed medical and adult recreational cannabis dispensaries.

Our services consist of retail services and hemp trading services, which focus on facilitating compliant hemp transactions for in-network, pre-qualified farmers and a pre-qualified buyer network. Our retail services division focuses on building distribution networks of compliant hemp-derived CBD brands across conventional and other retail channels, including convenience, pet care, and beauty channels.

Due to the complementary nature of our product and service ecosystem, we are able to successfully cross-sell into our existing customer base, while attracting new customers who are looking to consolidate their vendors and partner with a trusted and established source for nearly all ancillary cannabis and CBD solutions.

2020 Plan

During the second quarter of fiscal 2020, the Company adopted the 2020 Plan to more effectively execute the Company’s strategy of focusing its resources on more established, financially stable, and creditworthy customers (namely multi-state operators, licensed producers, and leading brands). In connection with the 2020 Plan, the Company began implementing a restructuring process that seeks to rationalize all aspects of its operations by, among other things, significantly reducing its overhead, implementing tighter expense controls, consolidating its warehouses, reducing its inventory, and drastically altering its sales strategy to focus more on these customers. The Company believes that this strategic shift and associated restructuring should result in a better forecast of demand, reduction of inventory and warehouse space, improved collections and cash flow, and potential revenue upside from these customers’ continued expansion and consolidation in the marketplace. For additional information see Note 13 above of our consolidated financial statements.

Update on COVID-19

On March 11, 2020, the World Health Organization ("WHO") recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, temporary store closures, and wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 has significantly curtailed global economic activity, including in the regulated cannabis and CBD industries in which the Company operates.

COVID-19 has materially impacted the Company’s markets and sources of revenues, including without limitation, by and through the following:

•State and provincial mandates requiring the temporary closure of nonessential businesses, such as the temporary closure of adult recreational use stores in Massachusetts, Nevada, and Ontario, Canada, as well as the substantial closure of many retail storefronts that sell CBD;

•Restrictions and limitations on travel that have curtailed consumer demand in tourist-heavy markets, such as Nevada and Colorado, as well as a general negative effect on the ability of the Company’s sales force to meet with potential customers and secure new orders; and

•The Company’s customers increasingly consolidating orders and purchasing less frequently in response to general macroeconomic and business uncertainty, creating a more volatile and irregular purchasing and revenue recognition pattern

In addition, the Company has been impacted by business and supply chain interruptions resulting from the COVID-19 pandemic, such as operating with a lighter-than-normal staff in its warehouses and periodically closing its warehouses to conduct deep cleaning services, which disrupts the Company's normal business functions, including processing and shipping orders to customers in a timely manner. The COVID-19 pandemic has also resulted in increased air freight costs incurred by the Company, which the Company is passing on to its customers via a surcharge, as well as general difficulties in securing space on incoming freight from its international vendors in order to make room for essential items. The Company has experienced, and could continue to experience, delays in orders from vendors, particularly in countries where the pandemic has had a significant impact, such as in China.

The COVID-19 pandemic has created significant disruption and volatility in the capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. If we need to raise additional capital to support operations in the future, we may be unable to access capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business as a result of COVID-19. In addition, the COVID-19 pandemic is also potentially affecting our customers and their access to the capital markets. As a result of all these factors, the Company’s management has significantly reduced non-essential costs.

In response to the health and safety risks and challenges presented by the COVID-19 pandemic, the Company has been proactively and regularly implementing measures to protect its employees. These measures include, but are not limited to, the following:

•Abiding by national, state, and local recommendations to require the wearing of protective face masks and practicing of social distancing;

•Arranging for regular cleaning services for Company facilities;

•Providing hand sanitizers and other disinfectants at workstations;

•Adopting remote working protocols, systems, and processes for nonessential employees to work from home;

•Conducting mandatory employee temperature checks, and on some occasions, requiring mandatory testing for employees;

•Reconfiguring facilities to promote social distancing;

•Operating with a smaller workforce in the warehouse and with staggered schedules;

•Adopting a temporary essential pay program for essential warehouse employees; and,

•Developing and launching an education and training platform to help employees navigate the current workplace landscape and practice general sanitation.

While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted at this time.

Results of Operations – Comparison of Three Months Ended May 31, 2020 and May 31, 2019

Revenue

For the three months ended May 31, 2020, our revenue decreased to $22.3 million compared to $41.5 million for the three months ended May 31, 2019, which represents a decrease of $19.2 million, or 46%. The decrease was primarily attributed to the Company's adoption of its 2020 Plan to align deeper with larger and more creditworthy multi-state-operators, licensed producers, and leading brands, which has resulted in significant cost-cutting initiatives and tighter credit terms extended to its

smaller customers; lower sales from vape and natural products; and travel and regulatory restrictions in the markets that the Company operates in due to the COVID-19 pandemic, as well as supply chain disruptions linked to the COVID-19 pandemic, which has resulted in shipping capacity constraints from China. The COVID-19 pandemic has resulted in customers ordering less frequently and at irregular intervals due to less visibility in their businesses, overall demand, and general economic conditions.

Gross Profit

Gross profit for the three months ended May 31, 2020 was $2.4 million, or 11% of revenue, compared to gross profit of $7.4 million, or 18% of revenue, for the three months ended May 31, 2019. The decrease in gross profit percentage is due primarily to an increase of $1.5 million related to excess and obsolete inventory write downs as a result of right sizing inventory levels to align with our 2020 Plan, $1.0 million purchase order cancellation charges and lower product sales.

Operating Expenses

Our operating expenses for the three months ended May 31, 2020 decreased to $13.7 million, or 61% of total revenue, from $23.7 million, or 57% of total revenue, for the three months ended May 31, 2019. Lower selling, general and administrative expense is primarily due to a $4.2 million decrease in compensation associated with lower headcount. Compensation expense includes a $0.8 million cash bonus reversal to reclassify the expense to stock compensation, which is offset by a $1.0 million restructuring charge associated with severance. To align with the Company's 2020 Plan, freight, consulting, and facilities costs decreased $1.0 million, $0.9 million, and $0.8 million, respectively. Other expenses contracted by $1.0 million primarily due to less travel related to the COVID-19 pandemic. For the three months ended May 31, 2019, operating expenses included a loss of $3.0 million related to the change in the fair value of contingent consideration.

Loss from Operations

Loss from operations for the three months ended May 31, 2020 was $11.3 million compared to $16.3 million for the three months ended May 31, 2019. The decrease is primarily attributable to compensation associated with our headcount reduction, lower freight costs, warehouse facilities closures, and reduced travel expenses related to the COVID-19 pandemic, which were partially offset by the restructuring charges the Company recognized in accordance with the adoption of its 2020 Plan, including severance and asset impairment charges.

Other Income (Expense), net

Other Income (Expense), net for the three months ended May 31, 2020 was an expense of $2.2 million compared to income of $5.7 million for the three months ended May 31, 2019. The increase in other expense is primarily due to an unfavorable change in fair value of warrant liability, resulting in an expense of $1.2 million, as compared to other income of $6.3 million in the previous year. Interest expense increased $1.0 million, when compared to the three months ended May 31, 2019.

Net Loss

Loss from operations for the three months ended May 31, 2020 was $13.5 million compared to $10.6 million for the three months ended May 31, 2019. To align with the Company's 2020 Plan, the increase in net loss is primarily attributable to inventory write downs related to right sizing inventory, purchase order cancellation charges, and restructuring charges related to severance. The increase is also derived from an unfavorable change in fair value of warrant liability, higher amortization of debt discount, higher stock-based compensation and lower product sales.

Results of Operations – Comparison of Nine Months Ended May 31, 2020 and May 31, 2019

Revenue

For the nine months ended May 31, 2020, our revenue decreased to $87.4 million compared to $102.0 million for the nine months ended May 31, 2019, which represents a decrease of $14.6 million, or 14.3%. The decrease was primarily attributable to the Company's adoption of its 2020 Plan to align deeper with larger and more creditworthy multi-state-operators, licensed producers, and leading brands, which has resulted in significant cost-cutting initiatives and tighter credit terms extended to its smaller customers; lower vape and natural products stemming from the illicit market vape crisis; travel and regulatory restrictions in the markets that the Company operates in due to the COVID-19 pandemic; and supply chain disruptions linked to the COVID-19 pandemic, resulting in shipping capacity constraints from China. This was partially offset by higher packaging

and energy sales and increased tariff revenue. The COVID-19 pandemic has resulted in customers ordering less frequently and at irregular intervals due to less visibility in their businesses, overall demand, and general economic conditions.

Gross Profit

Gross profit for the nine months ended May 31 2020 was $0.7 million, or 1% of revenue, compared to gross profit of $15.1 million, or 15% of revenue, for the nine months ended May 31, 2019. The decrease in gross profit percentage is due primarily to an increase of $12.5 million related to inventory write downs as a result of right sizing inventory levels to align with our strategy moving forward, $4.3 million purchase order cancellation charges and lower product sales, partially offset by tariff revenues.

Operating Expenses

Our operating expenses for the nine months ended May 31, 2020 increased to $69.2 million, or 79% of total revenue, from $48.5 million, or 48% of total revenue, for the nine months ended May 31, 2019. The increase in selling, general and administrative expense is primarily due to incremental bad debt expense of $8.1 million, restructuring expense of $8.3 million related to severance and asset impairment charges associated with warehouse facilities the Company closed, stock based compensation of $2.2 million, and consulting fees of $0.7 million. For the nine months ended May 31, 2019, operating expenses included a gain of $2.2 million related to the change in the fair value of contingent consideration.

Loss from Operations

Loss from operations for the nine months ended May 31, 2020 was $68.5 million compared to $33.4 million for the nine months ended May 31, 2019. The increase is primarily attributable to inventory write downs related to right sizing inventory levels to align with our new inventory strategy, restructuring charges related to severance and asset impairment charges associated with rationalizing the warehouse footprint as part of the new plan, purchase order cancellation charges, bad debt, stock-based compensation, consulting fees and lower product sales.

Other Income (Expense), net

Other Income (Expense), net for the nine months ended May 31, 2020 was an expense of $1.9 million compared to income of $5.3 million for the nine months ended May 31, 2019. This was primarily due to an unfavorable change in fair value of warrant liability, which resulted in $3.4 million in income for the nine months ending May 31, 2020, as compared to $7.3 million in income for the same period in 2019. This was also attributable to an increase in expense of $0.4 million on changes in the fair value of equity investment and an increase in interest expense of $3.1 million during the nine months ended May 31, 2020.

Net Loss


Loss from operations for the nine months ended May 31, 2020 was $70.4 million compared to $28.1 million for the nine months ended May 31, 2019. The increase in net loss is primarily attributable to measures taken to implement our 2020 Plan, including, inventory write downs related to right sizing inventory levels. restructuring charges related to, severance and asset impairment charges associated with rationalizing the warehouse footprint, purchase order cancellation charges and bad debt expense. The increase was also attributable to increase in interest expense, stock-based compensation, consulting fees, and lower product sales.

Liquidity and Capital Resources

At May 31, 2020 and May 31, 2019, we had cash of $11.1 million and $12.2 million, respectively, and a working capital surplus of $41.8 million and $63.0 million, respectively.

We believe that our level of liquidity sources, which includes available borrowing under our revolving credit facility, cash on hand, funds provided by operations, adoption of the 2020 plan and participation in available funding programs instituted by various state and federal governments in response to COVID-19 will be adequate to fund our expenditures and working capital requirements for the next 12 months.

Cash Flows from Operating Activities

Net cash used in operating activities for the nine months ended May 31, 2020 was $20.2 million compared to $57.5 million for the nine months ended May 31, 2019. The change is primarily attributable to the reduced level of inventory consistent with our efforts to improve our inventory management process, as part of our 2020 Plan.

Cash Flows from Investing Activities

Net cash used in investing activities for the nine months ended May 31, 2020 was $4.3 million compared to $5.4 million for the nine months ended May 31, 2019. The decrease is due to lower levels of equipment purchases, technology investments and leasehold improvements during the current fiscal year.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended May 31, 2020 was $31.7 million compared to $61.7 million for the nine months ended May 31, 2019. The decrease is attributable to the $12.3 million in net repayments on our line of credit, compared to $0.2 million in net borrowings in the prior year. The change is also attributable to $1.9 million in proceeds from notes payable, compared to $19.9 million in proceeds from notes payable in the prior year.

Monroe Revolving Credit Facility

On August 21, 2019, the Company and its subsidiaries (collectively, the “Borrowers”) entered into a secured asset based revolving credit facility (the “Monroe Revolving Credit Facility”), with an aggregate amount not to exceed $35.0 million outstanding at any time, with Monroe Capital Management Advisors, LLC (“Monroe”), as collateral agent and administrative agent, and the various lenders party thereto. The Monroe Revolving Credit Facility also includes an accordion feature that permits the Company to increase the available revolving commitments under the Monroe Revolving Credit Facility by up to an additional $15.0 million, subject to satisfaction of certain conditions. The Monroe Revolving Credit Facility has a 5-year term which matures on August 21, 2024 and is secured by a first priority lien on substantially all of the assets of the Borrowers. For additional information, see Note 8 above.

Long-term Debt

On June 9, 2020, the Company entered into a Third Exchange Agreement with the Investor in order to (a) amend and waive certain provisions of the Purchase Agreement and the Second Exchange Note, and (b) exchange the Second Exchange Note without any cash consideration for (i) the Third Exchange Note in the aggregate principal amount of $22.0 million and (ii) the Exchange Shares. Similar to the terms of the Second Exchange Note, the Third Exchange Note will mature on April 29, 2021, subject to the Investor’s right to extend such maturity date. Similar to the terms of the Original Note, the Amended Senior Note will not bear interest, except upon the occurrence of an event of default. For additional information, see Note 8 above.

PPP Loan

On April 30, 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act from a qualified lender (the “PPP Lender”), for an aggregate principal amount of approximately $1.9 million (the “PPP Loan”). The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration. The principal amount of the PPP Loan is subject to forgiveness under the Paycheck Protection Program upon the Company’s request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company. The Company intends to apply for forgiveness of the PPP Loan with respect to these covered expenses. To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to pay interest on the PPP Loan at a rate of 1.0% per annum, and commencing in October 2020 principal and interest payments will be required through the maturity date in April 2022. The terms of the PPP Loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The PPP Loan may be accelerated upon the occurrence of an event of default.

Off-Balance Sheet Transactions

We do not currently have, and did not have during the periods presented, any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going

basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable reserves, inventory and related reserves, expected cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation and recoverability of our net deferred tax assets and any related valuation allowance. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates, other than the adoption of ASC 842, Leases, as described in Note 7 to our condensed consolidated financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio.

Item 4.  Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s chairman, secretary and principal executive officer), and our chief financial officer (who is also the Company’s principal financial and accounting officer) to allow for timely decisions regarding required disclosure. Thus, in accordance with Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of May 31, 2020, which is the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, as disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended May 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During the period covered by this Quarterly Report on Form 10-Q, we have not been able to remediate the material weaknesses described in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019. Our remediation efforts will continue to be implemented throughout our 2020 fiscal year. We believe that the controls that we intend to implement will improve the effectiveness of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional steps to address the material weaknesses or to supplement or modify certain of our planned remediation measures.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may be subject to legal proceedings and claims that arise in the ordinary course of its business.

During fiscal 2019, lawsuits were filed in California federal and state court by various purported shareholders against, the Company, each of the current members of the Company’s Board of Directors, and certain of the Company’s current and former officers, alleging, among other things, federal securities law violations and/or related breaches of fiduciary duties in connection with the Company’s April 2019 restatement of certain prior period financial statements. In general, the lawsuits assert the same or similar allegations, including that the defendants artificially inflated the Company’s securities prices by knowingly making

materially false and misleading statements and omissions to the investing public about the Company’s financial statements, business, operations, management, and internal controls. These lawsuits are described below.

May v. KushCo Holdings, Inc., et al. Filed April 30, 2019. Case No. 8:19-cv-00798-JLS-KES, U.S. District Court for the Central District of California. This putative shareholder class action against the Company and certain of its current and former officers alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks unspecified compensatory damages and other relief on behalf of a class of purchasers of the Company’s securities between July 13, 2017 and April 9, 2019, inclusive. In September 2019, the Court appointed co-lead plaintiffs and co-lead counsel for the plaintiffs. The lead plaintiffs’ amended complaint was filed in November 2019. In February 2020, the Company moved to dismiss the amended complaint. The motion is pending. The Company intends to vigorously defend itself against these claims.

Salsberg v. Kovacevich, et al. Filed May 24, 2019. Case No. 8:19-cv-00998-JLS-KES, U.S. District Court for the Central District of California and Neysmith v. Baum, et al. Filed May 31, 2019. Case No. 8:19-cv-01070-JLS-KES, U.S. District Court for the Central District of California. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and disgorgement of profits, benefits, and compensation obtained by the defendants from the alleged conduct, to be paid to the Company. In September 2019, the Court consolidated these cases. In December 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Savage v. Kovacevich, et al. Filed June 14, 2019. Case No. 30-2019-01077191-CU-MC-NJC, Superior Court of California, County of Orange. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and unspecified damages and restitution from the defendants, to be paid to the Company. In August 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Bruno, et al. v. Kovacevich, et al. Filed September 26, 2019. Case No. A-19-802660-C, Eighth Judicial District Court of the State of Nevada and Majchrzak v. Kovacevich, et al. Filed October 2, 2019. Case No. A-19-902945-B, First Judicial District Court of the State of Nevada. These purported shareholder derivative actions against certain current and former directors and officers allege, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant in each action and the plaintiffs seek, among other things, equitable relief and unspecified damages from the defendants, to be paid to the Company. In May 2020, the Company accepted service of the complaints, and the plaintiffs have indicated that they intend to move to stay each action.

Item 1A. Risk Factors.

The Company is subject to a number of risks similar to those of other companies of similar size and with a focus on serving the cannabis and CBD industries, including, the development of certain products, competition, a limited number of suppliers, integration of acquisitions, substantial indebtedness, disruptions in the U.S. and global economy and financial markets, including as a result of COVID-19, government regulations, protection of proprietary rights, and dependence on key individuals. If the Company does not successfully generate additional products and services, or if such products and services are developed but not successfully commercialized, the Company could lose revenue opportunities. Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended August 31, 2019, filed with the SEC on November 12, 2019, describes certain risk factors that could materially and adversely affect our business, financial condition and results of operations. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business. To our knowledge, except as described below, there have been no material changes in the risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019.

The spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in the financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 has had and could continue to have material and adverse effects on our ability to successfully operate due to, among other factors:

•a general decline in business activity, especially as it relates to our customers’ expansion or consolidation activities;

•the continued classification of medical and/or recreational cannabis stores and/or dispensaries as “non-essential” in some states, which has resulted in these retail outlets having to temporarily shut down or materially adjust their operations;

•the destabilization of the markets, which could negatively impact our customer growth and access to capital, along with our customers’ ability to make payments for their purchase orders;

•severe disruptions to and instability in the global financial markets, and deterioration in credit and financing conditions, which could affect our access to capital necessary to fund business operations or our ability to address maturing liabilities on a timely basis on favorable terms, or at all;

•the potential negative impact on the health of our personnel, or the personnel of our customers, vendors, and partners, especially if a significant number of them are impacted;

•our inability to ensure business continuity during a disruption;

•a material disruption in our supply chain, which has affected and could continue to affect our ability to source products from vendors on a timely basis or on favorable terms;

•our potential inability to execute the 2020 Plan as planned, including the consolidation of our warehouse footprint in a timely and favorable manner, or at all;.

•the potential inability or delay to use judicial proceedings for in order to collect outstanding balances from our customers.

The rapid development and fluidity of this situation makes it difficult to predict the full extent of the impact of COVID-19 on our business and operations. We continue to assess the impact of COVID-19 on our business.

Item 2. Unregistered Sales of Equity Securities.

None.

Item 3. Default Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

The Company is disclosing under this Item 5 the following information otherwise disclosable in a Current Report on Form 8-K under "Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year":

On July 6, 2020, the Company's Board of Directors approved the Company's Amended and Restated Bylaws (the "Amended and Restated Bylaws"), effective immediately. The Amended and Restated Bylaws amend and restate in their entirety the Company's bylaws to, among other things: (i) permit meetings of stockholders to be held by remote communication, as determined by the board of directors; (ii) amend the process by which a meeting of stockholders may be adjourned; (iii) change the voting standard for matters presented for a vote of the Company’s stockholders (other than the election of directors which remains a plurality vote) from the affirmative vote of the holders of a majority of the stock having voting power present in person or represented by proxy at the meeting to the affirmative vote of a majority of the votes cast by the stockholders at the meeting and entitled to vote on the subject matter; (iv) adopt an advance notice bylaw related to stockholder proposals and nominees for election to the board of directors; and (v) make other technical amendments.

The foregoing summary is subject to, and qualified in its entirety by, the full text of the Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1.1 to this Quarterly Report on Form 10-Q and is incorporated by reference into this Item 5. Additionally, a copy of the Amended and Restated Bylaws, marked to show changes to the former bylaws, are also included as Exhibit 3.1.2 hereto.

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q. Where such filing is made by incorporation by reference to a previously filed document, such document is identified.

Exhibit Number	Description of Exhibit
3.1.1	Amended and Restated Bylaws of KushCo Holdings, Inc., amended and restated as of July 6, 2020
3.1.2	Amended and Restated Bylaws of KushCo Holdings, Inc., with changes marked against original bylaws of KushCo Holdings, Inc. dated as of March 7, 2014
4.1	Form of Third Exchange Note (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 000-55418) filed on June 10, 2020)
10.1	Form of Securities Purchase Agreement dated February 6, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-55418) filed February 10, 2020)
31.1*	Certification of principal executive officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of principal financial and accounting officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of principal financial and accounting officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

*Filed herewith.

*This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  July 9, 2020	By:	/s/ Nicholas Kovacevich
		Nicholas Kovacevich
		Chairman and Chief Executive Officer (principal executive officer)
Date:  July 9, 2020	By:	/s/ Stephen Christoffersen
		Stephen Christoffersen
		Chief Financial Officer (Principal Financial Officer)

EX-3.1.1

AMENDED AND RESTATED BYLAWS OF KUSHCO HOLDINGS, INC., A Nevada Corporation The Board of Directors of KushCo Holdings, Inc. (the “corporation”), by resolution has duly adopted these Amended and Restated Bylaws (these “bylaws”) as of July 6, 2020 in accordance with the Nevada Revised Statutes Chapter 78. ARTICLE I OFFICES Section 1. REGISTERED OFFICE. The registered office shall be Corporation Service Company, 112 North Curry Street, Carson City, NV, 89703, USA. Section 2. OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place within or without the State of Nevada, or by means of remote communication, including but not limited to electronic communications, videoconferencing, teleconferencing or other available technology if the corporation has implemented reasonable measures to verify the identity of each person participating through such means as a stockholder and provide the stockholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to communicate, and to read or hear the proceedings of the meetings in a substantially concurrent manner with such proceedings, as designated by the board of directors. A stockholder participating in a meeting by remote communication is deemed to be present in person at the meeting. Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be held at a date and time designated by the board of directors. At such meetings, directors shall be elected and any other proper business may be transacted by a plurality vote of stockholders. Section 3. SPECIAL MEETINGS. A special meeting of the stockholders, for any purpose or purposes whatsoever, unless prescribed by statute or by the articles of KushCo Holdings, Inc. Bylaws P a g e | 1

incorporation, may be called at any time by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders holding shares in the aggregate entitled to cast not less than a majority of the votes at any such meeting. The request shall be in writing, specifying the time of such meeting, the place where it is to be held and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving such request forthwith shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held. Section 4. NOTICE OF STOCKHOLDERS’ MEETINGS. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, (ii) an amendment to the articles of incorporation, (iii) a reorganization of the corporation, (iv) dissolution of the corporation, or (v) a distribution to preferred stockholders, the notice shall also state the general nature of such proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of stockholders shall be given either personally, by first-class mail or telegraphic or other written communication, or electronic notice, charges prepaid, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. If no such address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent by mail or telegram to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where this office is located. Personal delivery of any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. Notice KushCo Holdings, Inc. Bylaws P a g e | 2

shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. In the event of the transfer of stock after delivery or mailing of the notice of and prior to the holding of the meeting, it shall not be necessary to deliver or mail notice of the meeting to the transferee. If any notice addressed to a stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice. An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of stockholders shall constitute a quorum for the transaction of business, except as otherwise provided by statute or the articles of incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING AND NOTICE THEREOF. If a quorum is not represented, a majority of the shares represented at such meeting, either in person or by proxy, or the individual acting as chair of the meeting may adjourn the meeting from time to time until a quorum shall be represented. The individual acting as chair of the meeting may, for any or no reason, from time to time, adjourn or recess any meeting of stockholders. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted which might otherwise have been transacted at the adjourned meeting as originally called. When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken. However, if a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record as of the new record date. The stockholders present at a duly convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the departure of enough stockholders to leave less than a quorum of the voting KushCo Holdings, Inc. Bylaws P a g e | 3

power. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. Unless a record date set for voting purposes is fixed as provided in Section 1 of Article VIII, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice is given (or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held) shall be entitled to vote at such meeting. Any stockholder entitled to vote on any matter other than elections of directors or officers, may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares such stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares such stockholder is entitled to vote. Such vote may be by voice vote or by ballot; provided, however, that all elections for directors must be by ballot upon demand by a stockholder at any election and before the voting begins. Except as otherwise provided by law, the certificate of incorporation of the corporation or these bylaws, in all matters other than the election of directors, the affirmative vote of the majority of the votes cast by the shares of capital stock of the corporation present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, provided a quorum is present. Subject to the rights of the holders of any series of preferred stock to elect additional directors under specific circumstances, directors shall be elected by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election of directors, provided a quorum is present. Every stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The transactions at any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any regular or special meeting of stockholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of such proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that KushCo Holdings, Inc. Bylaws P a g e | 4

attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the meeting. Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares of a personal representative of the stockholder of their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary. Section 11. PROXIES. Each stockholder entitled to vote at a meeting of stockholders may authorize, in a manner permitted by the laws of the State of Nevada, another person or persons to act for such stockholder by proxy. Every proxy shall continue in full force and effect until its expiration or revocation in a manner permitted by the laws of the State of Nevada. No such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless the stockholder specifies in it the length of time for which it is to continue in force, which may not exceed seven (7) years from the date of its execution. Subject to these restrictions, any proxy duly executed is not revoked and continues in full force and effect until an instrument revoking it or a duly executed proxy bearing a later date is filed with the Secretary of the corporation. At no time shall any proxy be valid which shall be filed less than twenty-four (24) hours before the commencement of the meeting. In the case of a meeting of stockholders, the stockholder may revoke the proxy by attending the meeting and voting the stockholder’s shares in person, in which case, any vote cast by the person or persons designated by the stockholder to act as a proxy or proxies must be disregarded by the corporation when the votes are counted. Section 12. INSPECTORS OF ELECTION. Before any meeting of stockholders, the board of directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are appointed, the chairman of the meeting may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors before the meeting, or by the chairman at the meeting. KushCo Holdings, Inc. Bylaws P a g e | 5

The duties of these inspectors shall be as follows: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine the election result; and (f) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Section 13. ADVANCE NOTICE OF STOCKHOLDERS’ NOMINATIONS AND PROPOSALS. (a) Annual Meetings. At a meeting of the stockholders, only such nominations of persons for the election of directors and such other business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, nominations or such other business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors or any committee thereof; (ii) otherwise properly brought before the meeting by or at the direction of the board of directors or any committee thereof; or (iii) otherwise properly brought before an annual meeting by a stockholder who is a stockholder of record of the corporation at the time such notice of meeting is delivered, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this Section 13. In addition, any proposal of business (other than the nomination of persons for election to the board of directors) must be a proper matter for stockholder action. For business (including, but not limited to, director nominations) to be properly brought before an annual meeting by a stockholder pursuant to Section 13(a)(iii), the stockholder or stockholders of record intending to propose the business (the “Proposing Stockholder”) must have given timely notice thereof pursuant to this Section 13(a), in writing to the Secretary even if such matter is already the KushCo Holdings, Inc. Bylaws P a g e | 6

subject of any notice to the stockholders or Public Disclosure (as defined below) from the board of directors. To be timely, a Proposing Stockholder's notice for an annual meeting must be delivered to the Secretary at the principal executive offices of the corporation: (x) not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, in advance of the anniversary of the previous year's annual meeting if such meeting is to be held on a day which is not more than 30 days in advance of the anniversary of the previous year's annual meeting or not later than 60 days after the anniversary of the previous year's annual meeting; and (y) with respect to any other annual meeting of stockholders, including in the event that no annual meeting was held in the previous year, not earlier than the close of business on the 120th day prior to the annual meeting and not later than the close of business on the later of: (1) the 90th day prior to the annual meeting and (2) the close of business on the tenth day following the first date of Public Disclosure of the date of such meeting. In no event shall the Public Disclosure of an adjournment or postponement of an annual meeting commence a new notice time period (or extend any notice time period). For the purposes of this Section 13, “Public Disclosure” shall mean a disclosure made in a press release reported by the Dow Jones News Services, The Associated Press, or a comparable national news service or in a document filed by the corporation with the Securities and Exchange Commission (“SEC”) pursuant to Section 13, 14, or 15(d) of Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (the “Exchange Act”) (b) Stockholder Nominations. For the nomination of any person or persons for election to the board of directors pursuant to Section 13(a)(iii) or Section 13(d), a Proposing Stockholder's notice to the Secretary shall set forth or include: (i) the principal occupation or employment of each such nominee; (ii) the name, age, business address, and residence address of each nominee proposed in such notice; (iii) the class and number of shares of capital stock of the corporation which are owned of record and beneficially by each such nominee (if any); (iv) such other information concerning each such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved) or that is otherwise required to be disclosed, under Section 14(a) of the Exchange Act; (v) a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the Secretary upon written request) and a written statement and agreement executed by each such nominee acknowledging that such person: KushCo Holdings, Inc. Bylaws P a g e | 7

(A) consents to being named in the corporation’s proxy statement as a nominee and to serving as a director if elected, (B) intends to serve as a director for the full term for which such person is standing for election, and (C) makes the following representations: that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or any Voting Commitment that could limit or interfere with such person's ability to comply, if elected as a director of the corporation, with such person's fiduciary duties under applicable law, and (2) that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement, or indemnification (“Compensation Arrangement”) that has not been disclosed to the corporation in connection with such person's nomination for director or service as a director; and (vi) as to the Proposing Stockholder: (A) the name and address of the Proposing Stockholder as they appear on the corporation's books and of the beneficial owner, if any, on whose behalf the nomination is being made, (B) the class and number of shares of the corporation which are owned by the Proposing Stockholder (beneficially and of record) and owned by the beneficial owner, if any, on whose behalf the nomination is being made, as of the date of the Proposing Stockholder's notice, and a representation that the Proposing Stockholder will notify the corporation in writing of the class and number of such shares owned of record and beneficially as of the record date for the meeting within five (5) business days after the record date for such meeting, (C) a description of any agreement, arrangement, or understanding with respect to such nomination between or among the Proposing Stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, and any KushCo Holdings, Inc. Bylaws P a g e | 8

others (including their names) acting in concert with any of the foregoing, and a representation that the Proposing Stockholder will notify the corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five (5) business days after the record date for such meeting, (D) a description of any agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the Proposing Stockholder's notice by, or on behalf of, the Proposing Stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of such person or any of their affiliates or associates with respect to shares of stock of the corporation, and a representation that the Proposing Stockholder will notify the corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five (5) business days after the record date for such meeting, (E) a representation that the Proposing Stockholder is a holder of record of shares of the corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, and (F) a representation whether the Proposing Stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve the nomination and/or otherwise to solicit proxies from stockholders in support of the nomination. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder's understanding of the independence, or lack thereof, of such nominee. Any such update or supplement shall be delivered to the Secretary at the corporation's principal executive offices no later than five (5) business days after the request by the corporation for subsequent information has been delivered to the Proposing Stockholder. KushCo Holdings, Inc. Bylaws P a g e | 9

(c) Other Stockholder Proposals. For all business other than director nominations, a Proposing Stockholder's notice to the Secretary shall set forth as to each matter the Proposing Stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting; (ii) the reasons for conducting such business at the annual meeting; (iii) the text of any proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these by-laws, the language of the proposed amendment); (iv) any substantial interest (within the meaning of Item 5 of Schedule 14A under the Exchange Act) in such business of such stockholder and the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), if any, on whose behalf the business is being proposed; (v) any other information relating to such stockholder and beneficial owner, if any, on whose behalf the proposal is being made, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the proposal and pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder; (vi) a description of all agreements, arrangements, or understandings between or among such stockholder, the beneficial owner, if any, on whose behalf the proposal is being made, any of their affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such business and any material interest of such stockholder, beneficial owner, or any of their affiliates or associates, in such business, including any anticipated benefit therefrom to such stockholder, beneficial owner, or their affiliates or associates; and (vii) the information required by Section 13(b)(vi) above. (d) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders called by the KushCo Holdings, Inc. Bylaws P a g e | 10

board of directors at which directors are to be elected pursuant to the corporation's notice of meeting: (i) by or at the direction of the board of directors or any committee thereof; or (ii) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time the notice provided for in this Section 13(d) is delivered to the Secretary, who is entitled to vote at the meeting, and upon such election and who complies with the notice procedures set forth in this Section 13. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation’s notice of meeting, if such stockholder delivers a stockholder's notice that complies with the requirements of Section 13(b) to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of: (x) the 90th day prior to such special meeting; or (y) the tenth (10th) day following the date of the first Public Disclosure of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the Public Disclosure of an adjournment or postponement of a special meeting commence a new time period (or extend any notice time period). (e) Effect of Noncompliance. Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to be elected at any meeting of stockholders of the corporation to serve as directors and only such other business shall be conducted at a meeting as shall be brought before the meeting in accordance with the procedures set forth in this Section 13. If any proposed nomination was not made or proposed in compliance with this Section 13, or other business was not made or proposed in compliance with this Section 13, then except as otherwise required by law, the chair of the meeting shall have the power and duty to declare that such nomination shall be disregarded or that such proposed other business shall not be transacted. Notwithstanding anything in these by-laws to the contrary, unless otherwise required by law, if a Proposing Stockholder intending to propose business or make nominations at an annual meeting or propose a nomination at a special meeting pursuant to this Section 13 does not provide the information required under this Section 13 to the corporation, including the updated information required by Section 13(b)(vi)B), Section 13(b)(vi)(C). and Section 13(b)(vi)(D) within five (5) business days after the record date for such meeting or the Proposing Stockholder (or a qualified representative of the Proposing Stockholder) does not appear at the meeting to present the proposed business KushCo Holdings, Inc. Bylaws P a g e | 11

or nominations, such business or nominations shall not be considered, notwithstanding that proxies in respect of such business or nominations may have been received by the corporation. This Section 13 shall not apply to a proposal proposed to be made by a stockholder if the stockholder has notified the corporation of the stockholder's intention to present the proposal at an annual or special meeting only pursuant to and in compliance with Rule 14a-8 under the Exchange Act and such proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such meeting. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the Nevada Revised Statutes and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the power and authority to: (a) Select and remove all officers, agents, and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service. (b) Change the principal executive office or the principal business office from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or foreign country and conduct business within or without the State; designate any place within or without the State for the holding of any stockholders’ meeting, or meetings, including annual meetings; adopt, make and use a corporate seal, and prescribe the forms of certificates of stock, and alter the form of such seal and of such certificates from time to time as in their judgment they may deem best, provided that such forms shall at all times comply with the provisions of law. (c) Authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled, tangible or intangible property actually received. (d) Borrow money and incur indebtedness for the purpose of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory KushCo Holdings, Inc. Bylaws P a g e | 12

notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor. Section 2. NUMBER OF DIRECTORS. The number of directors which shall constitute the whole board shall not be less than one (1) nor more than seven (7). The exact number of authorized directors shall be set by resolution of the board of directors, within the limits specified above. The maximum or minimum number of directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw. Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the stockholders to hold office until the next annual meeting, but if any such annual meeting is not held or the directors are not elected at any annual meeting, the directors may be elected at any special meeting of stockholders held for that purpose, or at the next annual meeting of stockholders held thereafter. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified or until his earlier resignation or removal or his office has been declared vacant in the manner provided in these bylaws. Directors need not be stockholders. Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation, in which case such resignation shall be effective at the time specified. Unless such resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of a court or convicted of a felony. Any or all of the directors may be removed without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. Section 5. VACANCIES. Vacancies in the board of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. A vacancy in the board of directors exists as to any authorized position of directors which is not then filled by a duly elected director, whether caused by death, resignation, removal, increase in the authorized number of directors or otherwise. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. If the resignation of a director is KushCo Holdings, Inc. Bylaws P a g e | 13

effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. If after the filling of any vacancy by the directors, the directors then in office who have been elected by the stockholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent or more of the total number of shares at the time outstanding having the right to vote for such directors may call a special meeting of the stockholders to elect the entire board. The term of office of any director not elected by the stockholders shall terminate upon the election of a successor. Section 6. PLACE OF MEETINGS. Regular meetings of the board of directors shall be held at any place within or without the State of Nevada that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or without the State of Nevada that has been designated in the notice of the meeting or, if not stated in the notice or there is not notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in such meeting can hear one another, and all such directors shall be deemed to be present in person at such meeting. Section 7. ANNUAL MEETINGS. Immediately following each annual meeting of stockholders, the board of directors shall hold a regular meeting for the purpose of transaction of other business. Notice of this meeting shall not be required. Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice, provided the notice of any change in the time of any such meetings shall be given to all of the directors. Notice of a change in the determination of the time shall be given to each director in the same manner as notice for special meetings of the board of directors. Section 9. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown upon the records of the corporation. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated to either the director or to a KushCo Holdings, Inc. Bylaws P a g e | 14

person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 10. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice of consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment. Section 14. ACTION WITHOUT MEETING. Unless specifically prohibited by the corporation’s articles of incorporation or these bylaws, any action required to be taken at a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors of directors, or of any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof, and such consent signed by all the directors or all the members of the committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State or with anyone else. Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing herein contained shall be construed to preclude any director from serving the KushCo Holdings, Inc. Bylaws P a g e | 15

corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such services. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 16. DETERMINATION OF MAJORITY OF AUTHORIZED NUMBER OF DIRECTORS. Two (2) directors shall constitute a majority of the authorized number of directors when the whole board of directors consists of two (2) directors pursuant to Section 2 of Article III. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of one or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committees, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with regard to: (a) the approval of any action which, under Nevada law, also requires stockholders’ approval or approval of the outstanding shares; (b) the filing of vacancies on the board of directors or in any committees; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the stockholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members thereof. Section 2. MEETINGS AND ACTION BY COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12 (adjournment), 13 (notice of adjournment) and 14 KushCo Holdings, Inc. Bylaws P a g e | 16

(action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time or regular meetings of committees may be determined by resolutions of the board of directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. The committees shall keep regular minutes of their proceedings and report the same to the board when required. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any two or more offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a vice president, a secretary and a treasurer, none of whom need be a member of the board. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the corporation shall hold office until their successors are chosen and qualify. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power or removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time KushCo Holdings, Inc. Bylaws P a g e | 17

specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, of if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, the president or the chairman of the board. Section 9. SECRETARY. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record, keep or cause to be kept, at the principal executive office or such other place as the board of directors may order, a book of minutes of all meetings of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ and committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof. KushCo Holdings, Inc. Bylaws P a g e | 18

The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of stockholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody, as may be prescribed by the board of directors or by the bylaws. Section 10. TREASURER. The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 1. ACTIONS OTHER THAN BY THE CORPORATION. (a) Except as hereinafter stated otherwise, the corporation shall indemnify all of its officers and directors, past, present and future, against any and all expenses incurred by them, and each of them, including, but not limited to, legal fees, judgments and penalties which may be incurred, rendered or levied in any legal action brought against any or all KushCo Holdings, Inc. Bylaws P a g e | 19

of them for or on account of any act or omission alleged to have been committed while acting within the scope of their duties as officers or directors of this corporation. (b) The corporation shall indemnify to the fullest extent permitted by the Nevada Business Corporation Act any person who has been made, or is threatened to be made, a party to an action, suit, or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit, or proceeding by or in the right of the corporation), by reason of the fact that the person is or was a director or officer of the corporation, or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to an employee benefit plan of the corporation, or serves or served at the request of the corporation as a director or as an officer, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust, or other enterprise. (c) Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Section 2. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 2 of this Article VI, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense. Section 3. REQUIRED APPROVAL. Any indemnification under Section 2 of this Article VI, unless ordered by a court or advanced pursuant to Section 5 of this Article VI, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or KushCo Holdings, Inc. Bylaws P a g e | 20

(d) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. Section 4. ADVANCE OF EXPENSES. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this section do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. Section 5. OTHER RIGHTS. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article VI: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 1 of this Article VI or for the advancement of expenses made pursuant to Section 5 if this Article VI, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. Section 6. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 7. RELIANCE ON PROVISIONS. Each person who shall act as an authorized representative of the corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article. Section 8. SEVERABILITY. If any of the provisions of this Article are held to be invalid or unenforceable, this Article shall be construed as if it did not contain such invalid KushCo Holdings, Inc. Bylaws P a g e | 21

or unenforceable provision and the remaining provisions of this Article shall remain in full force and effect. Section 9. RETROACTIVE EFFECT. To the extent permitted by applicable law, the rights and powers granted pursuant to this Article VI shall apply to acts and actions occurring or in progress prior to its adoption by the board of directors. ARTICLE VII RECORDS AND BOOKS Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each stockholder. Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, the secretary shall, upon the written request of any stockholder, furnish to such stockholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the stockholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of this corporation and any subsidiary of this corporation. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation. Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the stockholders of the corporation as they deem appropriate. KushCo Holdings, Inc. Bylaws P a g e | 22

Section 5. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months. Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENTS. The corporation shall file with the Secretary of State of the State of Nevada, on the prescribed form, a list of its officers and directors and a designation of its resident agent in Nevada. ARTICLE VIII GENERAL CORPORATE MATTERS Section 1. RECORD DATE. For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any such meeting nor more than sixty (60) days prior to any other action, and in such case only stockholders of record on the date so fixed are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in Nevada law. If the board of directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the board has been taken, shall be the day on which the first written consent is given. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 2. CLOSING OF TRANSFER BOOKS PROHIBITED. In connection with the determination of stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or KushCo Holdings, Inc. Bylaws P a g e | 23

entitled to exercise any right in respect of any other lawful action, the board of directors shall not close the stock transfer books of the corporation for any reason but shall instead fix a record date for such determination in the manner provided in Section 1 of Article VIII of these bylaws. Section 3. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada. Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 5. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. Section 6. STOCK CERTIFICATES. The shares of the capital stock of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any class or series of stock shall be uncertificated shares. The corporation shall, within a reasonable time after the issuance or transfer of any uncertificated shares, send to the registered owner of the shares a written notice containing the information required to be set forth or stated on certificates pursuant to the Nevada Corporations Act. Shares represented by certificates shall be issued to each stockholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. Shares represented by certificates shall be signed in the name of the corporation by the president or vice president and by the treasurer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder. When the corporation is authorized to issue shares of more than one class or more than one series of any class, there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any stockholders upon request and without charge, a full or summary statement of the designations, preferences and relatives, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such KushCo Holdings, Inc. Bylaws P a g e | 24

rights, and, if the corporation shall be authorized to issue only special stock, such certificate must set forth in full or summarize the rights of the holders of such stock. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. No new certificate for shares shall be issued in place of any certificate theretofore issued unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate may be issued without the surrender and cancellation of the old certificate if the certificate thereto fore issued is alleged to have been lost, stolen or destroyed. In case of any such allegedly lost, stolen or destroyed certificate, the corporation may require the owner thereof or the legal representative of such owner to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 7. DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the articles of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserves in the manner in which it was created. Section 8. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 9. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation and the words “Corporate Seal, Nevada.” Section 10. REPRESENTATION OF SHARES OF OTHER CORPORA- TIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares held KushCo Holdings, Inc. Bylaws P a g e | 25

by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer. Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in Nevada law shall govern the construction of the bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person. Section 12. ELECTION NOT TO BE GOVERNED BY NRS 78.411 TO 78.444. The corporation elects not to be governed by the provisions of sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes regarding combinations with interested shareholders. ARTICLE IX AMENDMENTS Section 1. ALTERING, AMENDING OR REPEALING BYLAWS. These bylaws may be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the stockholders by a vote of the stockholders owning a majority of the shares and entitled to vote thereat. These bylaws may also be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the board of directors of the corporation (if notice of such alteration or repeal be contained in the notice of such special meeting) by a majority vote of the directors present at the meeting at which a quorum is present, but any such amendment shall not be inconsistent with or contrary to the provision of any amendment adopted by the stockholders. ARTICLE X SECURITIES OF OTHER CORPORATIONS Section 1. SECURITIES OF OTHER CORPORATIONS. The chief executive officer, or such other officer or agent designated by the board of directors, shall have full power and authority on behalf of the corporation to attend, act at, and vote at any meeting of security or interest holders of other corporations or entities in which the corporation may hold securities or interests. At the meeting, the chief executive officer or other designated agent shall possess and exercise any and all rights and powers incident to the ownership of the securities or interest which the corporation holds. KushCo Holdings, Inc. Bylaws P a g e | 26

C E R T I F I C A T E O F S E C R E T A R Y I, the undersigned, do hereby certify: 1. That I am the duly elected and acting secretary of KushCo Holdings, Inc., a Nevada corporation; and 2. That the foregoing Amended and Restated Bylaws constitute the bylaws of said corporation as duly adopted by the board of directors of said corporation by a Unanimous Written Consent dated as of July 6, 2020. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this July 6, 2020. /s/ Amir Sadr Amir Sadr Secretary KushCo Holdings, Inc. Bylaws P a g e | 27

EX-3.1.2

AMENDED AND RESTATED BYLAWS OF KUSH BOTTLES, INC. KUSHCO HOLDINGS, INC., A Nevada Corporation The Board of Directors of KushCo Holdings, Inc. (the “corporation”), by resolution has duly adopted these Amended and Restated Bylaws (these “bylaws”) as of July 6, 2020 in accordance with the Nevada Revised Statutes Chapter 78. ARTICLE I OFFICES Section 1. PRINCIPAL OFFICES.REGISTERED OFFICE. The principalregistered office shall be 311 West ThirdCorporation Service Company, 112 North Curry Street, Carson City, NV, 89703, USA. Section 2. OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place within or without the State of Nevada, or by means of remote communication, including but not limited to electronic communications, videoconferencing, teleconferencing or other available technology if the corporation has implemented reasonable measures to verify the identity of each person participating through such means as a stockholder and provide the stockholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to communicate, and to read or hear the proceedings of the meetings in a substantially concurrent manner with such proceedings, as designated by the board of directors. In the absence of any such designation, stockholders’ meetings shallA stockholder participating in a meeting by remote communication is deemed to be heldpresent in person at the principal executive office of the corporationmeeting. Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be held at a date and time designated by the board of directors. (At such meetings, directors shall be elected and any other proper business may be transacted by a plurality vote of stockholders.). Kush BottlesKushCo Holdings, Inc. Bylaws Page | 1

Section 3. SPECIAL MEETINGS. A special meeting of the stockholders, for any purpose or purposes whatsoever, unless prescribed by statute or by the articles of incorporation, may be called at any time by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders holding shares in the aggregate entitled to cast not less than a majority of the votes at any such meeting. The request shall be in writing, specifying the time of such meeting, the place where it is to be held and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving such request forthwith shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held. Section 4. NOTICE OF STOCKHOLDERS’ MEETINGS. All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting the general nature of the business to be transacted, or (ii) in the case of the annual meeting those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees which, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, (ii) an amendment to the articles of incorporation, (iii) a reorganization of the corporation, (iv) dissolution of the corporation, or (v) a distribution to preferred stockholders, the notice shall also state the general nature of such proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of stockholders shall be given either personally or, by first--class mail or telegraphic or other written communication, or electronic notice, charges prepaid, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. If no such address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent by mail or telegram to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where this office is located. Personal delivery of Kush BottlesKushCo Holdings, Inc. Bylaws Page | 2

any such notice to any officer of a corporation or association or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. In the event of the transfer of stock after delivery or mailing of the notice of and prior to the holding of the meeting, it shall not be necessary to deliver or mail notice of the meeting to the transferee. If any notice addressed to a stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of such notice. An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving such notice, and shall be filed and maintained in the minute book of the corporation. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of stockholders shall constitute a quorum for the transaction of business, except as otherwise provided by statute or the articles of incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders’ meeting, annual or special, whether or not If a quorum is present, may be adjourned from time to time by the vote of thenot represented, a majority of the shares represented at such meeting, either in person or by proxy, but inor the individual acting as chair of the meeting may adjourn the absence of meeting from time to time until a quorum, shall be represented. The individual acting as chair of the meeting may, for any or no otherreason, from time to time, adjourn or recess any meeting of stockholders. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted at such meeting.which might otherwise have been transacted at the adjourned meeting as originally called. When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at a meeting at which the adjournment is taken. However, if a new record Kush BottlesKushCo Holdings, Inc. Bylaws Page | 3

date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record as of the new record date. The stockholders present at a duly convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the departure of enough stockholders to leave less than a quorum of the voting power. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. Unless a record date set for voting purposes beis fixed as provided in Section 1 of Article VIII of these bylaws, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice is given (or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held) shall be entitled to vote at such meeting. Any stockholder entitled to vote on any matter other than elections of directors or officers, may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares such stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares such stockholder is entitled to vote. Such vote may be by voice vote or by ballot; provided, however, that all elections for directors must be by ballot upon demand by a stockholder at any election and before the voting begins. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the articles of incorporation a different vote is required in which case such express provision shall govern and control the decision of such question. Except as otherwise provided by law, the certificate of incorporation of the corporation or these bylaws, in all matters other than the election of directors, the affirmative vote of the majority of the votes cast by the shares of capital stock of the corporation present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, provided a quorum is present. Subject to the rights of the holders of any series of preferred stock to elect additional directors under specific circumstances, directors shall be elected by a plurality of the votes cast at a meeting of the stockholders by the holders of stock entitled to vote in the election of directors, provided a quorum is present. Every stockholder of record of the corporation shall be entitled at each meeting of stockholders to one vote for each share of stock standing in his name on the books of the corporation. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The transactions at any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be Kush BottlesKushCo Holdings, Inc. Bylaws Page | 4

transacted or the purpose of any regular or special meeting of stockholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of such proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall also constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the meeting. Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares of a personal representative of the stockholder of their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary. Section 11. PROXIES. Every person Each stockholder entitled to vote for directors or on any other matter shall have at a meeting of stockholders may authorize, in a manner permitted by the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A laws of the State of Nevada, another person or persons to act for such stockholder by proxy. Every proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by until its expiration or revocation in a subsequent proxy executed by, or attendance at the meeting and voting in person by the person executing the proxy; provided, however, that nomanner permitted by the laws of the State of Nevada. No such proxy shall be valid after the expiration of six (6) months from the date of such proxyits execution, unless coupled with an interest, or unless the person executing itstockholder specifies thereinin it the length of time for which it is to continue in force, which in no case shallmay not exceed seven (7) years from the date of its execution. Subject to the above and Nevada Lawthese restrictions, any proxy duly executed is not revoked and continues in full force and effect until an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the corporation.Secretary of the corporation. At no time shall any proxy be valid which shall be filed Kush BottlesKushCo Holdings, Inc. Bylaws Page | 5

less than twenty-four (24) hours before the commencement of the meeting. In the case of a meeting of stockholders, the stockholder may revoke the proxy by attending the meeting and voting the stockholder’s shares in person, in which case, any vote cast by the person or persons designated by the stockholder to act as a proxy or proxies must be disregarded by the corporation when the votes are counted. Section 12. INSPECTORS OF ELECTION. Before any meeting of stockholders, the board of directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are appointed, the chairman of the meeting may, and on the request of any stockholder or his proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors before the meeting, or by the chairman at the meeting. The duties of these inspectors shall be as follows: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine the election result; and (f) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Section 13. ADVANCE NOTICE OF STOCKHOLDERS’ NOMINATIONS AND PROPOSALS. (a) Annual Meetings. At a meeting of the stockholders, only such nominations of persons for the election of directors and such other business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, nominations or such other business must be: Kush BottlesKushCo Holdings, Inc. Bylaws Page | 6

(i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors or any committee thereof; (ii) otherwise properly brought before the meeting by or at the direction of the board of directors or any committee thereof; or (iii) otherwise properly brought before an annual meeting by a stockholder who is a stockholder of record of the corporation at the time such notice of meeting is delivered, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this Section 13. In addition, any proposal of business (other than the nomination of persons for election to the board of directors) must be a proper matter for stockholder action. For business (including, but not limited to, director nominations) to be properly brought before an annual meeting by a stockholder pursuant to Section 13(a)(iii), the stockholder or stockholders of record intending to propose the business (the “Proposing Stockholder”) must have given timely notice thereof pursuant to this Section 13(a), in writing to the Secretary even if such matter is already the subject of any notice to the stockholders or Public Disclosure (as defined below) from the board of directors. To be timely, a Proposing Stockholder's notice for an annual meeting must be delivered to the Secretary at the principal executive offices of the corporation: (x) not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, in advance of the anniversary of the previous year's annual meeting if such meeting is to be held on a day which is not more than 30 days in advance of the anniversary of the previous year's annual meeting or not later than 60 days after the anniversary of the previous year's annual meeting; and (y) with respect to any other annual meeting of stockholders, including in the event that no annual meeting was held in the previous year, not earlier than the close of business on the 120th day prior to the annual meeting and not later than the close of business on the later of: (1) the 90th day prior to the annual meeting and (2) the close of business on the tenth day following the first date of Public Disclosure of the date of such meeting. In no event shall the Public Disclosure of an adjournment or postponement of an annual meeting commence a new notice time period (or extend any notice time period). For the purposes of this Section 13, “Public Disclosure” shall mean a disclosure made in a press release reported by the Dow Jones News Services, The Associated Press, or a comparable national news service or in a document filed by the corporation with the Securities and Exchange Commission (“SEC”) pursuant to Section 13, 14, or 15(d) of Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder (the “Exchange Act”) (b) Stockholder Nominations. For the nomination of any person or persons for election to the board of directors pursuant to Section 13(a)(iii) or Section 13(d), a Proposing Stockholder's notice to the Secretary shall set forth or include: (i) the principal occupation or employment of each such nominee; Kush BottlesKushCo Holdings, Inc. Bylaws Page | 7

(ii) the name, age, business address, and residence address of each nominee proposed in such notice; (iii) the class and number of shares of capital stock of the corporation which are owned of record and beneficially by each such nominee (if any); (iv) such other information concerning each such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved) or that is otherwise required to be disclosed, under Section 14(a) of the Exchange Act; (v) a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the Secretary upon written request) and a written statement and agreement executed by each such nominee acknowledging that such person: (A) consents to being named in the corporation’s proxy statement as a nominee and to serving as a director if elected, (B) intends to serve as a director for the full term for which such person is standing for election, and (C) makes the following representations: that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or any Voting Commitment that could limit or interfere with such person's ability to comply, if elected as a director of the corporation, with such person's fiduciary duties under applicable law, and (2) that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement, or indemnification (“Compensation Arrangement”) that has not been disclosed to the corporation in connection with such person's nomination for director or service as a director; and (vi) as to the Proposing Stockholder: Kush BottlesKushCo Holdings, Inc. Bylaws Page | 8

(A) the name and address of the Proposing Stockholder as they appear on the corporation's books and of the beneficial owner, if any, on whose behalf the nomination is being made, (B) the class and number of shares of the corporation which are owned by the Proposing Stockholder (beneficially and of record) and owned by the beneficial owner, if any, on whose behalf the nomination is being made, as of the date of the Proposing Stockholder's notice, and a representation that the Proposing Stockholder will notify the corporation in writing of the class and number of such shares owned of record and beneficially as of the record date for the meeting within five (5) business days after the record date for such meeting, (C) a description of any agreement, arrangement, or understanding with respect to such nomination between or among the Proposing Stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, and any others (including their names) acting in concert with any of the foregoing, and a representation that the Proposing Stockholder will notify the corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five (5) business days after the record date for such meeting, (D) a description of any agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the Proposing Stockholder's notice by, or on behalf of, the Proposing Stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of such person or any of their affiliates or associates with respect to shares of stock of the corporation, and a representation that the Proposing Stockholder will notify the corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five (5) business days after the record date for such meeting, (E) a representation that the Proposing Stockholder is a holder of record of shares of the corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, and Kush BottlesKushCo Holdings, Inc. Bylaws Page | 9

(F) a representation whether the Proposing Stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve the nomination and/or otherwise to solicit proxies from stockholders in support of the nomination. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder's understanding of the independence, or lack thereof, of such nominee. Any such update or supplement shall be delivered to the Secretary at the corporation's principal executive offices no later than five (5) business days after the request by the corporation for subsequent information has been delivered to the Proposing Stockholder. (c) Other Stockholder Proposals. For all business other than director nominations, a Proposing Stockholder's notice to the Secretary shall set forth as to each matter the Proposing Stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting; (ii) the reasons for conducting such business at the annual meeting; (iii) the text of any proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these by-laws, the language of the proposed amendment); (iv) any substantial interest (within the meaning of Item 5 of Schedule 14A under the Exchange Act) in such business of such stockholder and the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), if any, on whose behalf the business is being proposed; (v) any other information relating to such stockholder and beneficial owner, if any, on whose behalf the proposal is being made, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the proposal and pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder; Kush BottlesKushCo Holdings, Inc. Bylaws Page | 10

(vi) a description of all agreements, arrangements, or understandings between or among such stockholder, the beneficial owner, if any, on whose behalf the proposal is being made, any of their affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such business and any material interest of such stockholder, beneficial owner, or any of their affiliates or associates, in such business, including any anticipated benefit therefrom to such stockholder, beneficial owner, or their affiliates or associates; and (vii) the information required by Section 13(b)(vi) above. (d) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders called by the board of directors at which directors are to be elected pursuant to the corporation's notice of meeting: (i) by or at the direction of the board of directors or any committee thereof; or (ii) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time the notice provided for in this Section 13(d) is delivered to the Secretary, who is entitled to vote at the meeting, and upon such election and who complies with the notice procedures set forth in this Section 13. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation’s notice of meeting, if such stockholder delivers a stockholder's notice that complies with the requirements of Section 13(b) to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of: (x) the 90th day prior to such special meeting; or (y) the tenth (10th) day following the date of the first Public Disclosure of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the Public Disclosure of an adjournment or postponement of a special meeting commence a new time period (or extend any notice time period). Kush BottlesKushCo Holdings, Inc. Bylaws Page | 11

(e) Effect of Noncompliance. Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to be elected at any meeting of stockholders of the corporation to serve as directors and only such other business shall be conducted at a meeting as shall be brought before the meeting in accordance with the procedures set forth in this Section 13. If any proposed nomination was not made or proposed in compliance with this Section 13, or other business was not made or proposed in compliance with this Section 13, then except as otherwise required by law, the chair of the meeting shall have the power and duty to declare that such nomination shall be disregarded or that such proposed other business shall not be transacted. Notwithstanding anything in these by-laws to the contrary, unless otherwise required by law, if a Proposing Stockholder intending to propose business or make nominations at an annual meeting or propose a nomination at a special meeting pursuant to this Section 13 does not provide the information required under this Section 13 to the corporation, including the updated information required by Section 13(b)(vi)B), Section 13(b)(vi)(C). and Section 13(b)(vi)(D) within five (5) business days after the record date for such meeting or the Proposing Stockholder (or a qualified representative of the Proposing Stockholder) does not appear at the meeting to present the proposed business or nominations, such business or nominations shall not be considered, notwithstanding that proxies in respect of such business or nominations may have been received by the corporation. This Section 13 shall not apply to a proposal proposed to be made by a stockholder if the stockholder has notified the corporation of the stockholder's intention to present the proposal at an annual or special meeting only pursuant to and in compliance with Rule 14a-8 under the Exchange Act and such proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such meeting. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the Nevada Revised Statutes and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the power and authority to: (a) Select and remove all officers, agents, and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law, with the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service. Kush BottlesKushCo Holdings, Inc. Bylaws Page | 12

(b) Change the principal executive office or the principal business office from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or foreign country and conduct business within or without the State; designate any place within or without the State for the holding of any stockholders’ meeting, or meetings, including annual meetings; adopt, make and use a corporate seal, and prescribe the forms of certificates of stock, and alter the form of such seal and of such certificates from time to time as in their judgment they may deem best, provided that such forms shall at all times comply with the provisions of law. (c) Authorize the issuance of shares of stock of the corporation from time to time, upon such terms as may be lawful, in consideration of money paid, labor done or services actually rendered, debts or securities cancelled, tangible or intangible property actually received. (d) Borrow money and incur indebtedness for the purpose of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, or other evidences of debt and securities therefor. Section 2. NUMBER OF DIRECTORS. The number of directors which shall constitute the whole board shall not be less than one (1) nor more than seven (7). The exact number of authorized directors shall be set by resolution of the board of directors, within the limits specified above. The maximum or minimum number of directors cannot be changed, nor can a fixed number be substituted for the maximum and minimum numbers, except by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw. Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the stockholders to hold office until the next annual meeting, but if any such annual meeting is not held or the directors are not elected at any annual meeting, the directors may be elected at any special meeting of stockholders held for that purpose, or at the next annual meeting of stockholders held thereafter. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified or until his earlier resignation or removal or his office has been declared vacant in the manner provided in these bylaws. Directors need not be stockholders. Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation, in which case such resignation shall be effective at the time specified. Unless such resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of a court or convicted of a felony. Any or all of the directors may be removed without cause ofif such Kush BottlesKushCo Holdings, Inc. Bylaws Page | 13

removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. Section 5. VACANCIES. Vacancies in the board of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. A vacancy in the board of directors exists as to any authorized position of directors which is not then filled by a duly elected director, whether caused by death, resignation, removal, increase in the authorized number of directors or otherwise. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. If after the filling of any vacancy by the directors, the directors then in office who have been elected by the stockholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent or more of the total number of shares at the time outstanding having the right to vote for such directors may call a special meeting of the stockholders to elect the entire board. The term of office of any director not elected by the stockholders shall terminate upon the election of a successor. Section 6. PLACE OF MEETINGS. Regular meetings of the board of directors shall be held at any place within or without the State of Nevada that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or without the State of Nevada that has been designated in the notice of the meeting or, if not stated in the notice or there is not notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in such meeting can hear one another, and all such directors shall be deemed to be present in person at such meeting. Section 7. ANNUAL MEETINGS. Immediately following each annual meeting of stockholders, the board of directors shall hold a regular meeting for the purpose of transaction of other business. Notice of this meeting shall not be required. Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice, provided the notice of Kush BottlesKushCo Holdings, Inc. Bylaws Page | 14

any change in the time of any such meetings shall be given to all of the directors. Notice of a change in the determination of the time shall be given to each director in the same manner as notice for special meetings of the board of directors. Section 9. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown upon the records of the corporation. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In case such notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated to either the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 10. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice of consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of such time and place shall be given prior to the Kush BottlesKushCo Holdings, Inc. Bylaws Page | 15

time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment. Section 14. ACTION WITHOUT MEETING. AnyUnless specifically prohibited by the corporation’s articles of incorporation or these bylaws, any action required or permitted to be taken byat a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors of directors, or of any committee thereof may be taken without a meeting, if a consent in writing, setting forth the action so taken, isshall be signed by the directors having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of all the directors entitled to vote thereon were presentwith respect to the subject matter thereof, and voted. Such action by written such consent signed by all the directors or all the members of the committee shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be , and may be stated as such in any document filed with the minutes of the proceedings of the boardSecretary of State or with anyone else. Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such services. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 16. DETERMINATION OF MAJORITY OF AUTHORIZED NUMBER OF DIRECTORS. Two (2) directors shall constitute a majority of the authorized number of directors when the whole board of directors consists of two (2) directors pursuant to Section 2 of Article III, Section 2. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of one or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committees, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with regard to: (a) the approval of any action which, under Nevada Lawlaw, also requires stockholders’ approval or approval of the outstanding shares; Kush BottlesKushCo Holdings, Inc. Bylaws Page | 16

(b) the filing of vacancies on the board of directors or in any committees; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the stockholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members thereof. Section 2. MEETINGS AND ACTION BY COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12 (adjournment), 13 (notice of adjournment) and 14 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time or regular meetings of committees may be determined by resolutions of the board of directors and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. The committees shall keep regular minutes of their proceedings and report the same to the board when required. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any two or more offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the Kush BottlesKushCo Holdings, Inc. Bylaws Page | 17

pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a vice president, a secretary and a treasurer, none of whom need be a member of the board. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the corporation shall hold office until their successors are chosen and qualify. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power or removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, of if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be Kush BottlesKushCo Holdings, Inc. Bylaws Page | 18

prescribed by the board of directors or the bylaws. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, the president or the chairman of the board. Section 9. SECRETARY. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and shall record, keep or cause to be kept, at the principal executive office or such other place as the board of directors may order, a book of minutes of all meetings of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ and committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of stockholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody, as may be prescribed by the board of directors or by the bylaws. Section 10. TREASURER. The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his Kush BottlesKushCo Holdings, Inc. Bylaws Page | 19

transactions as treasurer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (a) ACTIONS BY THE CORPORATION. Except as hereinafter stated otherwise, the corporation shall indemnify all of its officers and directors, past, present and future, against any and all expenses incurred by them, and each of them, including, but not limited to, legal fees, judgments and penalties which may be incurred, rendered or levied in any legal action brought against any or all of them for or on account of any act or omission alleged to have been committed while acting within the scope of their duties as officers or directors of this corporation. (b) The corporation may indemnify shall indemnify to the fullest extent permitted by the Nevada Business Corporation Act any person who was or is a party has been made, or is threatened to be made, a party to any threatened, pending or completedan action or, suit, or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit, or proceeding by or in the right of the corporation to procure a judgment in its favor), Kush BottlesKushCo Holdings, Inc. Bylaws Page | 20

by reason of the fact that hethe person is or was a director, or officer, of the corporation, or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to an employee or agentbenefit plan of the corporation, or isserves or was servingserved at the request of the corporation as a director, or as an officer, or as a fiduciary of an employee or agentbenefit plan, of another corporation, partnership, joint venture, trust, or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees, actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. . (a)(c) Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. Section 2. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2Section 2 of this Article VI, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense. Section 3. REQUIRED APPROVAL. Any indemnification under Sections 1 and Section 2 of this Article VI, unless ordered by a court or advanced pursuant to Section 5 of this Article VI, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. Section 4. ADVANCE OF EXPENSES. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and Kush BottlesKushCo Holdings, Inc. Bylaws Page | 21

directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this section do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. Section 5. OTHER RIGHTS. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article VI: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 21 of this Article VI or for the advancement of expenses made pursuant to Section 5 if this Article VI, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. Section 6. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 7. RELIANCE ON PROVISIONS. Each person who shall act as an authorized representative of the corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article. Section 8. SEVERABILITY. If any of the provisions of this Article are held to be invalid or unenforceable, this Article shall be construed as if it did not contain such invalid or unenforceable provision and the remaining provisions of this Article shall remain in full force and effect. Kush BottlesKushCo Holdings, Inc. Bylaws Page | 22

Section 9. RETROACTIVE EFFECT. To the extent permitted by applicable law, the rights and powers granted pursuant to this Article VI shall apply to acts and actions occurring or in progress prior to its adoption by the board of directors. ARTICLE VII RECORDS AND BOOKS Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each stockholder. Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, the secretary shall, upon the written request of any stockholder, furnish to such stockholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the stockholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of this corporation and any subsidiary of this corporation. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation. Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the stockholders of the corporation as they deem appropriate. Section 5. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, Kush BottlesKushCo Holdings, Inc. Bylaws Page | 23

that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months. Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENTS. The corporation shall file with the Secretary of State of the State of Nevada, on the prescribed form, a list of its officers and directors and a designation of its resident agent in Nevada. ARTICLE VIII GENERAL CORPORATE MATTERS Section 1. RECORD DATE. For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any such meeting nor more than sixty (60) days prior to any other action, and in such case only stockholders of record on the date so fixed are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date fixed as aforesaid, except as otherwise provided in Nevada Lawlaw. If the board of directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the board has been taken, shall be the day on which the first written consent is given. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 2. CLOSING OF TRANSFER BOOKS PROHIBITED. In connection with the determination of stockholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any right in respect of any other lawful action, the board of directors shall not close the stock transfer books of the corporation for any reason but shall instead fix a record date for such determination in the manner provided in Section 1 of Article VIII of these bylaws. Kush BottlesKushCo Holdings, Inc. Bylaws Page | 24

Section 3. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada. Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 5. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as in the bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. Section 6. STOCK CERTIFICATES. A certificate or certificates for shares of the capital stock of the corporationThe shares of the capital stock of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any class or series of stock shall be uncertificated shares. The corporation shall, within a reasonable time after the issuance or transfer of any uncertificated shares, send to the registered owner of the shares a written notice containing the information required to be set forth or stated on certificates pursuant to the Nevada Corporations Act. Shares represented by certificates shall be issued to each stockholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. AllShares represented by certificates shall be signed in the name of the corporation by the president or vice president and by the treasurer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the stockholder. When the corporation is authorized to issue shares of more than one class or more than one series of any class, there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any stockholders upon request and without charge, a full or summary statement of the designations, preferences and relatives, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights, and, if the corporation shall be authorized to issue only special stock, such certificate must set forth in full or summarize the rights of the holders of such stock. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or Kush BottlesKushCo Holdings, Inc. Bylaws Page | 25

whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. No new certificate for shares shall be issued in place of any certificate theretofore issued unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate may be issued without the surrender and cancellation of the old certificate if the certificate thereto fore issued is alleged to have been lost, stolen or destroyed. In case of any such allegedly lost, stolen or destroyed certificate, the corporation may require the owner thereof or the legal representative of such owner to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 7. DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the articles of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserves in the manner in which it was created. Section 8. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 9. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation and the words “Corporate Seal, Nevada.” Section 10. REPRESENTATION OF SHARES OF OTHER CORPORA- TIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by proxy duly executed by said officer. Kush BottlesKushCo Holdings, Inc. Bylaws Page | 26

Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in Nevada Lawlaw shall govern the construction of the bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person. Section 12. ELECTION NOT TO BE GOVERNED BY NRS 78.411 TO 78.444. The corporation elects not to be governed by the provisions of sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes regarding combinations with interested shareholders. ARTICLE IX AMENDMENTS Section 1. AMENDMENT BY STOCKHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of stockholders entitled to vote such shares, except as otherwise provided by law or by the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the stockholders as provided in Section 1 of this Article, bylaws may be adopted, amended or repealed by the board of directors. Section 1. ALTERING, AMENDING OR REPEALING BYLAWS. These bylaws may be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the stockholders by a vote of the stockholders owning a majority of the shares and entitled to vote thereat. These bylaws may also be altered, amended or repealed and new bylaws may be adopted at any regular or special meeting of the board of directors of the corporation (if notice of such alteration or repeal be contained in the notice of such special meeting) by a majority vote of the directors present at the meeting at which a quorum is present, but any such amendment shall not be inconsistent with or contrary to the provision of any amendment adopted by the stockholders. ARTICLE X SECURITIES OF OTHER CORPORATIONS Section 1. SECURITIES OF OTHER CORPORATIONS. The chief executive officer, or such other officer or agent designated by the board of directors, shall have full power and authority on behalf of the corporation to attend, act at, and vote at any meeting of security or interest holders of other corporations or entities in which the corporation may hold securities or interests. At the meeting, the chief executive officer or other designated agent shall possess and exercise any and all rights and powers incident to the ownership of the securities or interest which the corporation holds. Kush BottlesKushCo Holdings, Inc. Bylaws Page | 27

C E R T I F I C A T E O F S E C R E T A R Y I, the undersigned, do hereby certify: 1. That I am the duly elected and acting secretary of Kush BottlesKushCo Holdings, Inc., a Nevada corporation; and 2. That the foregoing Amended and Restated Bylaws constitute the Bylawsbylaws of said corporation as duly adopted by the board of directors of said corporation by a Unanimous Written Consent dated as of March 7, 2014July 6, 2020. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this March 7, 2014July 6, 2020. Dallas Imbimbo /s/ Amir Sadr Amir Sadr Secretary Kush BottlesKushCo Holdings, Inc. Bylaws Page | 28

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer Required by

Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicholas Kovacevich, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of KushCo Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 9, 2020

/s/ Nicholas Kovacevich

Nicholas Kovacevich
Chairman and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer Required by

Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen Christoffersen, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of KushCo Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 9, 2020

/s/ Stephen Christoffersen

Stephen Christoffersen
Chief Financial Officer
(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of KushCo Holdings, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the three months ended May 31, 2020 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: July 9, 2020

/s/ Nicholas Kovacevich

Nicholas Kovacevich
Chairman and Chief Executive Officer
(Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of KushCo Holdings, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the three months ended May 31, 2020 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: July 9, 2020

/s/ Stephen Christoffersen

Stephen Christoffersen
Chief Financial Officer
(Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	9 Months Ended
	May 31, 2020	Jul. 07, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	May 31, 2020
Document Transition Report	false
Entity File Number	000-55418
Entity Registrant Name	KUSHCO HOLDINGS, INC.
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	46-5268202
Entity Address, Address Line One	6261 Katella Avenue
Entity Address, Address Line Two	Suite 250
Entity Address, City or Town	Cypress
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	90630
City Area Code	714
Local Phone Number	462-4603
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	KSHB
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		125,576,568
Entity Central Index Key	0001604627
Current Fiscal Year End Date	--08-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	May 31, 2020	Aug. 31, 2019
Current assets:
Cash	$ 11,088	$ 3,944
Accounts receivable, net	11,162	25,972
Inventory, net	24,048	43,768
Prepaid expenses and other current assets	15,655	12,209
Total current assets	61,953	85,893
Goodwill	52,267	52,267
Intangible assets, net	2,393	3,103
Property and equipment, net	9,296	11,054
Other assets	9,759	6,917
Total Assets	135,668	159,234
Current liabilities:
Accounts payable, net	5,497	10,907
Customer deposits	4,217	2,992
Accrued expenses and other current liabilities	10,424	6,468
Line of credit	0	12,261
Total current liabilities	20,138	32,628
Long-term liabilities:
Notes payable	24,084	18,975
Warrant liability	2,009	5,444
Other non-current liabilities	4,562	833
Total long-term liabilities	30,655	25,252
Total liabilities	50,793	57,880
Commitments and contingencies
Stockholders' equity
Preferred stock, value, outstanding	0	0
Common stock, value, outstanding	120	90
Additional paid-in capital	218,117	164,258
Retained Earnings (Accumulated Deficit)	(133,362)	(62,994)
Total stockholders' equity	84,875	101,354
Total liabilities and stockholders' equity	$ 135,668	$ 159,234
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000	10,000
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	265,000	265,000
Common Stock, Shares, Outstanding	119,933	90,041

XML

Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares	May 31, 2020	Aug. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	265,000	265,000
Common stock, shares issued	119,933	90,041
Common stock, shares outstanding	119,933	90,041

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019
Income Statement [Abstract]
Net revenue	$ 22,264	$ 41,486	$ 87,369	$ 101,982
Cost of goods sold	19,892	34,090	86,634	86,834
Gross profit	2,372	7,396	735	15,148
Operating expenses:
Selling, general and administrative	12,719	20,719	60,977	52,032
Gain on disposition of assets	0	0	0	(1,254)
Change in fair value of contingent consideration	0	2,961	0	(2,247)
Restructuring costs	952	0	8,253	0
Total operating expenses	13,671	23,680	69,230	48,531
Loss from operations	(11,299)	(16,284)	(68,495)	(33,383)
Other income (expense):
Change in fair value of warrant liability	(1,160)	6,254	3,435	7,309
Increase (Decrease) in Equity Securities, FV-NI	(9)	(71)	(1,100)	(663)
Interest expense	(1,487)	(474)	(4,594)	(1,452)
Other income (expense), net	468	(10)	386	110
Total other income (expense)	(2,188)	5,699	(1,873)	5,304
Loss before income taxes	(13,487)	(10,585)	(70,368)	(28,079)
Income tax expense	0	(13)	0	(13)
Net loss	$ (13,487)	$ (10,598)	$ (70,368)	$ (28,092)
Net loss per share:
Basic net loss per common share	$ (0.11)	$ (0.12)	$ (0.64)	$ (0.34)
Diluted net loss per common share	$ (0.11)	$ (0.19)	$ (0.64)	$ (0.42)
Weighted-average common shares outstanding
Basic weighted average number of common shares outstanding	119,574	88,286	110,440	83,338
Diluted weighted average number of common shares outstanding	119,574	88,377	110,440	83,535

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Accumulated Deficit	Additional Paid-in Capital	Common Stock
Beginning balance at Aug. 31, 2018	$ 81,638	$ (23,358)	$ 104,918	$ 78
Beginning balance (in shares) at Aug. 31, 2018				78,273
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	2,297		2,297
Stock-based compensation (in shares)				5
Stock option exercises	42		41	$ 1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				281
Net loss	(8,579)	(8,579)
Ending balance at Nov. 30, 2018	75,398	(31,937)	107,256	$ 79
Ending balance (in shares) at Nov. 30, 2018				78,559
Beginning balance at Aug. 31, 2018	81,638	(23,358)	104,918	$ 78
Beginning balance (in shares) at Aug. 31, 2018				78,273
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock issued for acquisitions	141
Stock issued for equity investment	0
Net loss	(28,092)
Ending balance at May. 31, 2019	103,537	(51,450)	154,898	$ 89
Ending balance (in shares) at May. 31, 2019				88,840
Beginning balance at Nov. 30, 2018	75,398	(31,937)	107,256	$ 79
Beginning balance (in shares) at Nov. 30, 2018				78,559
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	3,178		3,178
Stock-based compensation (in shares)				125
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				89
Stock sold to investors	41,593		41,584	$ 9
Stock sold to investors (in shares)				9,077
Stock issued for acquisitions	140		140
Stock issued for acquisitions (In shares)				162
Net loss	(8,915)	(8,915)
Ending balance at Feb. 28, 2019	111,394	(40,852)	152,158	$ 88
Ending balance (in shares) at Feb. 28, 2019				88,012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	2,741		2,740	$ 1
Stock-based compensation (in shares)				328
Stock issued for acquisitions (In shares)				500
Net loss	(10,598)	(10,598)
Ending balance at May. 31, 2019	103,537	(51,450)	154,898	$ 89
Ending balance (in shares) at May. 31, 2019				88,840
Beginning balance at Aug. 31, 2019	101,354	(62,994)	164,258	$ 90
Beginning balance (in shares) at Aug. 31, 2019				90,041
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	3,189	0	3,189
Stock-based compensation (in shares)				99
Stock sold to investors	27,379		27,362	$ 17
Stock sold to investors (in shares)				17,198
Stock issued for acquisitions (In shares)				23
Net loss	(12,506)	(12,506)
Ending balance at Nov. 30, 2019	119,416	(75,500)	194,809	$ 107
Ending balance (in shares) at Nov. 30, 2019				107,361
Beginning balance at Aug. 31, 2019	101,354	(62,994)	164,258	$ 90
Beginning balance (in shares) at Aug. 31, 2019				90,041
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock issued for acquisitions	0
Stock issued for equity investment	2,528
Net loss	(70,368)
Ending balance at May. 31, 2020	84,875	(133,362)	218,117	$ 120
Ending balance (in shares) at May. 31, 2020				119,933
Beginning balance at Nov. 30, 2019	119,416	(75,500)	194,809	$ 107
Beginning balance (in shares) at Nov. 30, 2019				107,361
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	3,141		3,141
Stock-based compensation (in shares)				89
Issuance of restricted stocks (in shares)				15
Stock sold to investors	14,716		14,706	$ 10
Stock sold to investors (in shares)				10,000
Stock issued for equity investment	2,528		2,526	$ 2
Stock issued for equity investment (Shares)				1,653
Net loss	(44,375)	(44,375)	0	$ 0
Ending balance at Feb. 29, 2020	95,426	(119,875)	215,182	$ 119
Ending balance (in shares) at Feb. 29, 2020				119,118
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	2,936		2,936
Stock-based compensation (in shares)				353
Issuance of restricted stocks			(1)	$ 1
Issuance of restricted stocks (in shares)				462
Net loss	(13,487)	(13,487)
Ending balance at May. 31, 2020	$ 84,875	$ (133,362)	$ 218,117	$ 120
Ending balance (in shares) at May. 31, 2020				119,933

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	May 31, 2020	May 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (70,368)	$ (28,092)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3,259	1,711
Amortization of debt discount	3,902	0
Provision for bad debt	10,421	2,313
Provision for sales returns	30	540
Inventory obsolescence	2,218	0
Provision for inventory reserve	14,619	2,133
Loss (gain) on disposal of assets	26	(1,254)
Gain on termination of leases	(798)	0
Impairment of assets	6,895	0
Change in fair value of equity investment	1,100	663
Stock compensation expense	11,074	8,839
Change in fair value of warrant liability	(3,435)	(7,309)
Change in fair value of contingent consideration	0	(2,247)
Changes in operating assets and liabilities:
Accounts receivable	6,854	(8,756)
Inventory	5,101	(43,446)
Prepaid expenses and other current assets	(7,854)	(1,632)
Other non-current assets	498	(706)
Accounts payable	(5,813)	13,278
Customer deposits	1,225	2,253
Accrued expenses and other current liabilities	1,600	4,232
Net cash used in operating activities	(20,198)	(57,480)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment, and intangibles	(4,317)	(5,420)
Net cash used in investing activities	(4,317)	(5,420)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of finance leases	(86)
Repayment of capital leases		(105)
Proceeds from notes payable	1,900	19,935
Proceeds from stock option exercises	0	42
Proceeds from issuance of common stock	42,095	41,593
Proceeds from line of credit	76,325	94,808
Repayments on line of credit	(88,575)	(94,610)
Net cash provided by financing activities	31,659	61,663
Net increase (decrease) in cash	7,144	(1,237)
Cash at beginning of year	3,944	13,467
Cash at end of year	11,088	12,230
CASH PAID FOR:
Interest	624	959
NON-CASH INVESTING AND FINANCING ACTIVITIES
Services prepaid for in common stock	646	1,277
Accrued and unpaid amounts for purchase of property & equipment	403	356
Stock issuance for acquisition of Hybrid	0	141
Shares issued in exchange for equity investment in Xtraction Services	2,528	0
Fair value of shares received from sale of assets	$ 0	$ 1,791

XML

SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

May 31, 2020

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the activity of KushCo Holdings, Inc. (the “Company”) and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the condensed consolidated financial statements for the interim periods presented herein, but are not necessarily indicative of operating results to be achieved for full fiscal years or other interim periods. The condensed consolidated balance sheet as of August 31, 2019 was derived from the audited financial statements as of that date but does not include all disclosures as required by GAAP. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year then ended and filed with the SEC on November 12, 2019.

References to amounts in these notes to condensed consolidated financial statements are in thousands, except per share amounts, unless otherwise specified.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period.

Significant estimates relied upon in preparing these condensed consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.

Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus, trade receivables do not bear interest. Trade accounts receivables are periodically evaluated for collectability based on the customer's past credit history and current financial condition. The Company’s net accounts receivable balance was $11,162 and $25,972 as of May 31, 2020 and August 31, 2019, respectively. The Company’s allowance for doubtful accounts was $3,660 and $1,058 as of May 31, 2020 and August 31, 2019, respectively. The increase in allowance for doubtful accounts was driven primarily by the deteriorating credit conditions in California exhibited by the Company’s customers in this market, which have significantly impacted the Company’s ability to collect, in part or in full, amounts owed by these customers. The Company’s sales return reserve was $506 and $477 as of May 31, 2020 and August 31, 2019, respectively, and is included in “Accounts receivable, net” on the Company’s condensed consolidated balance sheet.

Inventory

Inventories are stated at the lower of cost or net realizable value using the average cost method. The Company’s inventory consists of finished goods of $24,048 and $43,768 as of May 31, 2020 and August 31, 2019, respectively. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company’s prepaid inventory

was $8,429 and $7,134 as of May 31, 2020 and August 31, 2019, respectively. The Company regularly reviews inventory and, when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life. As of May 31, 2020, the Company had $11,285 of inventory reserve. As of August 31, 2019, the Company had $2,640 of inventory reserve.

Equity Investment

On January 30, 2020, the Company partnered with Xtraction Services Holding Corp (“Xtraction Services”), a provider of equipment leasing solutions to owners and operators of cannabis and hemp companies in the United States in order to provide such solutions to the Company’s network of regulated cannabis and cannabidiol (“CBD”) operators. The Company’s Chief Financial Officer, Stephen Christoffersen, has served on the board of directors for Xtraction Services since May 2019. Under the terms of its agreement with Xtraction Services, upon the closing of the transaction, the Company issued 1,653 of its common shares in exchange for 10,600 proportionate voting shares (the “XS Shares”) of Xtraction Services, the equivalent of 19.9% of Xtraction Services' market capitalization on the closing date. On January 30, 2020, the value of the Company's shares issued in exchange for the equity investment in Xtraction Services was $2,528. The Company’s investment in Xtraction Services is included in “Other assets” on the Company’s condensed consolidated balance sheet.

Net Loss Per Share

The Company computes earnings per share under Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share (“ASC 260”). Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method.

For the three and nine months ended May 31, 2020, basic and diluted weighted average shares are the same, as the Company generated a net loss for the period. The computation for the three and nine months ended May 31, 2020 does not include 11,368 options and 21,737 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

For the three and nine months ended May 31, 2019, net loss is adjusted for changes in fair value of warrants recorded as a liability (see Note 9 below) and weighted average diluted shares includes dilutive warrants. The computation of diluted net loss per share for the three and nine months ended May 31, 2019 does not include 12,662 options and 6,988 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

Revenue Recognition

The Company markets and sells a wide variety of ancillary products and services to customers operating in the regulated medical and recreational cannabis and CBD industries. These complementary products and services include compliant and custom packaging products; vape hardware; hydrocarbons and solvents; natural products; stainless steel tanks; custom branded anti-counterfeit and authentication labels; hemp trading services; and retail services focused on CBD mass distribution, industry education and compliance.

In accordance with ASC 606, Revenue from Contracts with Customers, the Company applies the following steps to recognize revenue for the sale of products that reflects the consideration to which the Company expects to be entitled to receive in exchange for the promised goods:

•Identify the contract with a customer.

•Identify the performance obligations in the contract.

•Determine the transaction price.

•Allocate the transaction price to the performance obligations in the contract.

•Recognize revenue when the Company satisfies a performance obligation.

Advertising

The Company conducts advertising for the promotion of its products and services. In accordance with ASC subtopic 720-35-25 (“ASC 720”), advertising costs are charged to expense when incurred. Advertising costs were $21 and $207 for the three

months ended May 31, 2020 and May 31, 2019, respectively. Advertising costs were $199 and $877 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The ASU removes, modifies, and adds certain disclosure requirements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine its impact it may have on its financial statements.

In January 2020, the FASB issued ASU 2020-1, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-1made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Update on COVID-19

On March 11, 2020, the World Health Organization ("WHO") recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, temporary store closures, and wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 has significantly curtailed global economic activity, including in the regulated cannabis and CBD industries in which the Company operates.

While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted at this time.

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CONCENTRATIONS OF RISK

9 Months Ended

May 31, 2020

Risks and Uncertainties [Abstract]

CONCENTRATIONS OF RISK

CONCENTRATIONS OF RISK 

Supplier Concentrations

The Company purchases inventory from various suppliers and manufacturers. For the nine months ended May 31, 2020 and May 31, 2019, the Company had one vendor which accounted for approximately 33% and 42%, respectively, of total inventory purchases. As of May 31, 2020, there were two vendors in the aggregate that represented approximately 23% of accounts payable. As of May 31, 2019, there were two vendors that represented approximately 42% of accounts payable.

Customer Concentrations

During the nine months ended May 31, 2020, no customer represented over 10% of the Company’s revenue. For the nine months ended May 31, 2019, the Company had one customer that represented approximately 10% of the Company’s revenues. As of May 31, 2020, there were two customers in aggregate, that represented approximately 47% of accounts receivable. As of May 31, 2019, there was one customer that represented 24% of accounts receivable.

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RELATED-PARTY TRANSACTIONS	9 Months Ended
	May 31, 2020
Related Party Transactions [Abstract]
RELATED-PARTY TRANSACTIONS	RELATED-PARTY TRANSACTIONSThe Company sells certain products and supplies to two related parties. Sales recognized during the three months ended May 31, 2020 and May 31, 2019 from the related parties totaled $113 and $40, respectively. Sales recognized during the nine months ended May 31, 2020 and May 31, 2019 from the related parties totaled $1,299 and $99, respectively. Total accounts receivable from related parties was $755 and $465 as of May 31, 2020 and August 31, 2019, respectively. Further, the Company rents certain warehouse equipment from a related party. No rental payments were made from the related party during the three months ended May 31, 2020. During the three months ended May 31, 2019, total rental payments of $112 were made from the related party. During the nine months ended May 31, 2020 and May 31, 2019, total rental payments of $231 and $210, respectively, were made to the related party.

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PROPERTY AND EQUIPMENT

9 Months Ended

May 31, 2020

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

The major classes of fixed assets consist of the following:

	May 31, 2020		August 31, 2019
Machinery and equipment	$	6,116	$	4,430
Vehicles	540		603
Office Equipment	3,395		3,232
Leasehold improvements	1,963		3,296
Construction in progress	661		1,930
	12,675		13,491
Accumulated Depreciation	(3,379)		(2,437)
	$	9,296	$	11,054

Depreciation expense was $990 and $397 for the three months ended May 31, 2020 and May 31, 2019, respectively. Depreciation expense was $2,549 and $965 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

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INTANGIBLE ASSETS

9 Months Ended

May 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

INTANGIBLE ASSETS

Intangible assets consist of the following:

		As of May 31, 2020						As of August 31, 2019
Description	Weighted Average Estimated Useful Life	Gross Carrying Value		Accumulated Amortization		Net Amount		Gross Carrying Value		Accumulated Amortization		Net Amount
Trade name	6 years	2,600		(1,336)		1,264		2,600		(1,011)		1,589
Non-compete agreement	4 years	2,370		(1,241)		1,129		2,370		(856)		1,514
		$	4,970	$	(2,577)	$	2,393	$	4,970	$	(1,867)	$	3,103

Amortization expense was $237 for the three months ended May 31, 2020 and 2019. Amortization expense was $710 and $746 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

The following table summarizes the remaining estimated amortization of definite-lived intangible assets as of May 31, 2020:

For the year ended August 31,
2020 (remaining three months)	$	237
2021	881
2022	747
2023	528
	$	2,393

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

9 Months Ended

May 31, 2020

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

	May 31, 2020		August 31, 2019
Accrued compensation	2,532		3,485
Sales tax payable	745		1,047
Lease liability	1,605		—
Other accrued expenses	5,542		1,936
	$	10,424	$	6,468

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LEASES

9 Months Ended

May 31, 2020

Lessee Disclosure [Abstract]

LEASES

LEASES

The Company adopted ASC 842 “Leases” (“ASC 842”) effective September 1, 2019 utilizing the modified retrospective approach for adoption for all leases that existed at or are commenced after the date of initial application with an option to use certain practical expedients. The package of practical expedients allowed the Company to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases. The Company also used (i) hindsight when evaluating contractual lease options, (ii) the practical expedient that allows lessees to treat lease and non-lease components of leases as a single lease component, (iii) the portfolio approach which allows similar leased assets to be grouped and accounted for together, and (iv) the short-term lease for leases with a term of 12 months or less.

The adoption of ASC 842 had a material impact on the condensed consolidated balance sheet due to the recognition of Right of Use (“ROU”) assets and lease liabilities. The adoption of this ASC did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows. The Company did not recognize a material cumulative effect adjustment to the opening balance sheet retained earnings on September 1, 2019. Because the modified retrospective approach was elected, the ASU was not applied to periods prior to adoption and did not have an impact on previously reported results. At adoption, the Company recognized operating lease ROU assets and lease liabilities that reflect the present value of the future payments. As the rate implicit in the lease could not be determined for any of the Company’s leases, an estimated incremental borrowing rate of 10.7%, which reflects the interest rate the Company would pay to borrow funds over a similar term and in a similar economic environment, was used to determine the present value of lease payments. Based on the impact of ASC 842 on the lease population, the Company recorded $7.6 million in lease liabilities and $6.8 million for ROU assets based upon the lease liabilities adjusted for deferred rent. ROU assets are included in “Other assets” and lease liabilities are included in “Accrued expenses and other current liabilities” and “Other non-current liabilities” on the Company’s condensed consolidated balance sheet.

The Company determines if an arrangement is a lease at inception. The Company leases its facilities and certain office equipment under operating leases which expire on various dates through 2026. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments. The ROU asset also includes any fixed lease payments, including in-substance fixed lease payments and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease term is determined at lease commencement and includes any non-cancellable period for which the Company has the right to use the underlying asset, together with any options to extend that the Company is reasonably certain to exercise.

Lease Liabilities

Lease liabilities as of May 31, 2020 consist of the following:

Current portion of lease liabilities	$	1,605
Long term lease liabilities, net of current portion	4,562
Total lease liabilities	$	6,167

Aggregate lease maturities as of May 31, 2020 are as follows:

Year ended August 31,
2020 (remaining three months)	$	647
2021	2,054
2022	1,968
2023	1,362
2024	764
Thereafter	579
Total minimum lease payments	7,374
Less imputed interest	(1,207)
Total lease liabilities	$	6,167

Rent expense was $590 and $2,279, respectively, for the three and nine months ended May 31, 2020. At May 31, 2020, the leases had a weighted average remaining lease term of 3.7 years and a weighted average discount rate of 8.5%. Rent expense for the three and nine months ended May 31, 2019 was $720 and $2,226, respectively, under ASC 840, the predecessor to ASC 842.

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DEBT

9 Months Ended

May 31, 2020

Debt Disclosure [Abstract]

DEBT

DEBT

Monroe Revolving Credit Facility

On August 21, 2019, the Company and its subsidiaries (collectively, the “Borrowers”) entered into a secured asset based revolving credit facility (the “Monroe Revolving Credit Facility”), with an aggregate amount not to exceed $35.0 million outstanding at any time, with Monroe Capital Management Advisors, LLC (“Monroe”), as collateral agent and administrative agent, and the various lenders party thereto. The Monroe Revolving Credit Facility also includes an accordion feature that permits the Company to increase the available revolving commitments under the Monroe Revolving Credit Facility by up to an additional $15.0 million, subject to satisfaction of certain conditions. The Monroe Revolving Credit Facility has a 5-year term which matures on August 21, 2024 and is secured by a first priority lien on substantially all of the assets of the Borrowers.

The Monroe Revolving Credit Facility contains customary representations and warranties, affirmative and negative covenants, including a financial covenant requiring certain minimum availability, and events of default. As of May 31, 2020, there was no balance outstanding under the facility. As of August 31, 2019, the outstanding balance under the facility was $12.3 million.

The Company incurred closing costs associated with the Monroe Revolving Credit Facility in the amount of $2,602, which were deferred and amortized over the 5-year term of the Monroe Revolving Credit Facility on a straight-line basis. As of May 31, 2020, unamortized debt issuance costs of $2,194 are included in “Other assets.” Interest expense and amortization of debt discount, associated with the Monroe Revolving Credit Facility during the three months ended May 31, 2020 amounted to $73 and $154, respectively. Interest expense and amortization of debt discount, associated with the Monroe Revolving Credit Facility during the nine months ended May 31, 2020 amounted to $528 and $461, respectively.

Monroe Warrants

On August 21, 2019, the Company entered into a subscription agreement with Monroe, pursuant to which the Company issued to Monroe a warrant to purchase up to 500 shares of its common stock (the “Monroe Warrant”) at an exercise price of $4.25 per share. The Monroe Warrant has a 5-year term and as such will expire on August 21, 2024. Amortization expense for the three and nine months ended May 31, 2020 was $50 and $148, respectively.

Long-term Debt

On April 29, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which the Company issued and sold a senior note (the “Original Note”) to the Investor in a private placement offering in the aggregate principal amount of $21.3 million with an original issue discount of $1.3 million, and received net proceeds of $20.0 million. The Original Note was a senior unsecured obligation, and unless earlier redeemed, was scheduled to mature on October 30, 2020. The Original Note did not bear interest, except upon the occurrence of an event of default.

On August 21, 2019, the Company entered into an exchange agreement (the “Exchange Agreement”) with the Investor in order to amend and waive certain provisions of the Purchase Agreement and the Original Note and to exchange the Original Note for (i) a new senior note (the “Amended Senior Note”) for the same aggregate principal amount as the Original Note and (ii) a warrant to purchase up to 650 shares of its common stock at an exercise price of $4.25 per share. The warrant has an expiration date of August 21, 2024 and has not been exercised as of May 31, 2020. As of August 21, 2019, the warrant was reclassified from a derivative liability to equity with a corresponding adjustment to additional paid-in capital.

Similar to the terms of the Original Note, the Amended Senior Note was set to mature on October 30, 2020, at which time the Company was to pay the Investor an amount in cash representing 120% of all outstanding principal, less original issue discount, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Amended Senior Note did not bear interest except upon the occurrence of an event of default.

On November 8, 2019, the Company entered into a Second Exchange Agreement (“Second Exchange Agreement”) with the Investor, pursuant to which the Company amended the Amended Senior Note (as amended, the “Second Amended Senior Note”). Pursuant to the terms of the Second Amended Senior Note, the maturity date of the Second Amended Senior Note was extended to April 29, 2021 and the aggregate principal amount of the Second Amended Senior Note was increased to approximately $24.0 million and the original issue discount was increased to $1.5 million. Upon maturity, the Company was to pay the Investor an amount in cash representing 120% of all outstanding principal, less original issue discount, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Second Amended Senior Note did not bear interest, except upon the occurrence of an event of default.

See Note 14 below for a description of the Third Exchange Agreement entered into by the Company and the Investor subsequent to May 31, 2020.

PPP Loan

On April 30, 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the “PPP Lender”), for an aggregate principal amount of approximately $1.9 million (the "PPP Loan"). The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration. The principal amount of the PPP Loan is subject to forgiveness under the Paycheck Protection Program upon the Company’s request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company. The Company intends to apply for forgiveness of the PPP Loan with respect to these covered expenses. To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to pay interest on the PPP Loan at a rate of 1.0% per annum, and commencing in October 2020 principal and interest payments will be required through the maturity date in April 2022. The terms of the PPP Loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The PPP Loan may be accelerated upon the occurrence of an event of default.

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WARRANT LIABILITY

9 Months Ended

May 31, 2020

WARRANT LIABILITY

WARRANT LIABILITY

WARRANT LIABILITY

In addition to the warrants described above, in June 2018, the Company issued warrants to purchase 3,750 shares of its common stock exercisable at a price per share of $5.28 (the “2018 Warrants”) to investors in a registered direct offering. The 2018 Warrants have a term of five years from the date of issuance. Pursuant to ASC Topic 815, the initial fair value of the 2018 Warrants of $15,350 was recorded as a warrant liability on the issuance date. The estimated fair values of the 2018 Warrants were computed at issuance using a Black-Scholes option pricing model.

The estimated fair value of the outstanding liabilities associated with the 2018 Warrants was $2,009 and $5,444 as of May 31, 2020 and August 31, 2019, respectively.

Increases or decreases in fair value of the Company's liability associated with the 2018 Warrants are included as a component of “Other expense” in the accompanying condensed consolidated statements of operations for the respective period. The changes to the liability associated with the 2018 Warrants resulted in an increase of $1,160 and decrease of $3,435 in liability and a corresponding loss and gain for the three and nine months ended May 31, 2020, respectively. The changes to the liability associated with the 2018 Warrants resulted in a decrease of $6,254 and $7,309 in liability and a corresponding gain for the three and nine months ended May 31, 2019, respectively.

The estimated fair value of the 2018 Warrants was computed as of May 31, 2020 using the Black Scholes model with the following assumptions: stock price of $1.19, volatility of 119.5%, risk-free rate of 0.22%, annual dividend yield of 0% and expected life of 3.0 years.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

May 31, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements are performed in accordance with the guidance provided by ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, equity investments, accounts receivable, accounts payable and accrued liabilities and obligations approximate their fair values based on their short-term nature. The carrying amount of the Company’s long-term notes payable approximates its fair value based on interest rates available to the Company for similar debt instruments and similar remaining maturities.

The Company accounts for its investment in Smoke Cartel, Inc. (“Smoke Cartel”) at fair value. On September 21, 2018, Smoke Cartel and the Company entered into an agreement to sell Rowl-Uh-Bowl (the “RUB”) web domain and inventory related to this product line and in exchange, received 1,410 shares of Smoke Cartel common stock. The fair value of the Company’s investment as of August 31, 2019 and May 31, 2020 was based upon the closing price of Smoke Cartel's common stock on each respective date. The investment was classified as a Level 2 financial instrument.

The Company accounts for its investment in Xtraction Services at fair value. The fair value of the Company’s investment at May 31, 2020 was based upon the closing price of Xtraction Services' common stock on each respective date. The investment was classified as a Level 2 financial instrument.

In connection with the Company’s registered direct offering in June 2018, the Company issued the 2018 Warrants, which are accounted for as a warrant liability (see Note 9 above.) The estimated fair value of the liability is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The estimated fair value of the contingent consideration related to the Company’s business combinations is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 2 assets and the Level 3 liabilities:

	Fair Value at May 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	2,060	$	—	$	2,060	$	—
Liabilities:
Warrant liability	$	2,009	$	—	$	—	$	2,009

	Fair Value at August 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	592	$	—	$	592	$	—
Liabilities:
Warrant liability	$	5,444	$	—	$	—	$	5,444

The following table reflects adjustments to the estimated fair value of the Company’s warrant liability with respect to the 2018 Warrants measured using Level 3 inputs:

	Warrant Liability
As of August 31, 2019	$	5,444
Adjustments to estimated fair value	(3,204)
As of November 30, 2019	2,240
Adjustments to estimated fair value	(1,391)
As of As of February 29, 2020	849
Adjustments to estimated fair value	1,160
As of May 31, 2020	$	2,009

	Warrant Liability
As of August 31, 2018	$	14,430
Adjustments to estimated fair value	216
As of November 30, 2018	14,646
Adjustments to estimated fair value	(1,271)
As of February 28, 2019	13,375
Adjustments to estimated fair value	(5,965)
As of May 31, 2019	$	7,410

The following table reflects the changes in fair value of the Company’s contingent consideration payable measured using Level 3 inputs:

	Contingent Consideration Payable
As of August 31, 2018	$	5,488
Change in fair value	394
As of November 30, 2018	5,882
Change in fair value	(5,602)
Cash payments	(140)
Settled in shares- Hybrid	(140)
As of As of February 28, 2019	—
Change in fair value	2,961
As of May 31, 2019	$	2,961

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STOCKHOLDERS' EQUITY

9 Months Ended

May 31, 2020

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Preferred Stock

The Company’s authorized preferred stock is 10,000 shares with a par value of $0.001. As of May 31, 2020, and August 31, 2019, there were no shares of preferred stock issued or outstanding.

Common Stock

The Company’s authorized common stock is 265,000 shares with a par value of $0.001. As of May 31, 2020, and August 31, 2019, there were 119,933 and 90,041 shares issued and outstanding, respectively.

On September 26, 2019, the Company entered into purchase agreements with certain accredited investors pursuant to which the Company issued and sold an aggregate of 17,198 units, with each unit consisting of one share of its common stock and a warrant to purchase half a share of its common stock in a registered direct offering (the “September 2019 Offering”). The purchase price for a unit was $1.75. The closing of the September 2019 Offering occurred on September 30, 2019 and resulted in aggregate gross proceeds to the Company of approximately $30.1 million. The aggregate net proceeds to the Company from the September 2019 Offering, after deducting the placement agent fees and other offering expenses, was approximately $27.4 million. Subject to certain ownership limitations, the warrants were immediately exercisable at an exercise price equal to $2.25 per share of common stock. The warrants are exercisable for five years from the date of issuance.

On February 6, 2020, the Company entered into purchase agreements with certain accredited investors pursuant to which the Company issued and sold an aggregate of 10,000 units, with each unit consisting of one share of its common stock and a warrant to purchase half a share of its common stock in a registered direct offering (the “February 2020 Offering”). The purchase price for a unit was $1.60. The closing of the February 2020 Offering occurred on February 10, 2020 and resulted in aggregate gross proceeds to the Company of approximately $16.0 million. The aggregate net proceeds from the February 2020 Offering, after deducting the placement agent fees and other offering expenses, was approximately $14.6 million. Subject to certain ownership limitations, the warrants were immediately exercisable at an exercise price equal to $2.00 per share of common stock. The warrants are exercisable for five years from the date of issuance.

Share-based Compensation

The Company recorded total stock-based compensation expense of $2,985 and $2,667 for the three months ended May 31, 2020 and May 31, 2019, respectively, and $11,074 and $8,839 for the nine months ended May 31, 2020 and May 31, 2019, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. Stock-based compensation expense is included in selling, general and administrative expense in the condensed consolidated statements of operations.

On September 1, 2019, the Company adopted Accounting Standards Update 2018-7 which addresses several aspects of the accounting for non-employee share-based payment transactions and expands the scope of ASC 718, Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Under the simplified standard, non-

employee options will be valued once at the date of grant. At adoption, all awards without established measurement dates were revalued one final time and did not have a material impact on the condensed consolidated financial statements.

Stock Incentive Plan

The Company’s 2016 Stock Incentive Plan (the “Plan”) was adopted on February 9, 2016. The Plan authorizes the issuance of up to 18,000 shares of common stock in the form of stock-based awards to the Company’s employees and directors. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant and have 10 years contractual terms. The option awards generally vest over three years subject to the recipient’s continuous service.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of its stock price over the expected option term, expected risk-free interest rate over the expected option term, and expected dividend yield rate over the expected option term. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC 718. These amounts are estimates only and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended May 31, 2020 and May 31, 2019:

	Nine Months Ended
	May 31, 2020	May 31, 2019
Expected term in years	5.3 – 5.9	1-3
Expected volatility	64% – 120%	69% – 87%
Risk-free interest rate	0.3% – 1.7%	2.3% – 3.0%
Expected dividend yield	0.0%	0.0%

The expected term of stock options granted during the nine months ended May 31, 2020 and May 31, 2019 is based on management's judgement and reflects expected exercise patterns. The expected volatility of these stock options is based on management’s analysis of historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life of these options was increased, a higher expected volatility was used, or if the expected dividend yield increased.

The following table summarizes the Company's stock option activity during the nine months ended May 31, 2020:

	Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance Outstanding, August 31, 2019	14,761	$	4.89	9.0	$	3,192
Granted	3,667	2.24
Exercised	(9)	2.06			$	14
Forfeited	(7,051)	4.74
Balance Outstanding, May 31, 2020	11,368	$	4.10	8.4	$	358
Vested and expected to vest at May 31, 2020	10,187	4.13		8.3	$	285
Exercisable, May 31, 2020	5,998	$	4.40	7.9	$	26

Stock compensation expense related to stock options was $7,348 and $5,740 for the nine months ended May 31, 2020 and May 31, 2019, respectively. The weighted-average grant-date fair value of options granted during the nine months ended May 31, 2020 and May 31, 2019, was $1.39 and $2.59, respectively.

As of May 31, 2020, there was $12,482 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 1.7 years.

Restricted Stock and Restricted Stock Units

During the nine months ended May 31, 2020, the Company awarded 533 shares of restricted stock to consultants in exchange for $662 of services rendered.

During the nine months ended May 31, 2019, the Company issued 295 shares of restricted stock to consultants in exchange for $377 of services rendered and $1,277 of prepaid services, for a total of $1,654. The prepaid services are included in prepaid expenses on the condensed consolidated balance sheet as of May 31, 2019.

Stock-based compensation expense related to restricted stock awards was $3,726 and $3,099, respectively, for the nine months ended May 31, 2020 and May 31, 2019.

During the nine months ended May 31, 2020, the Company awarded 174 shares of restricted stock units to directors for serving on the board of directors.

As of May 31, 2020, $2,329 of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted average period of 1.3 years.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

May 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Other Commitments

In the ordinary course of business, the Company may enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms. The Company had no such agreements as of May 31, 2020.

Litigation

The Company may be subject to legal proceedings and claims that arise in the ordinary course of its business.

During fiscal 2019, lawsuits were filed in California federal and state court by various purported shareholders against, the Company, each of the current members of the Company’s Board of Directors, and certain of the Company’s current and former officers, alleging, among other things, certain federal securities law violations and/or related breaches of fiduciary duties in connection with the Company’s April 2019 restatement of certain prior period financial statements. In general, the lawsuits assert the same or similar allegations, including that the defendants artificially inflated the Company’s securities prices by knowingly making materially false and misleading statements and omissions to the investing public about the Company’s financial statements, business, operations, management, and internal controls. These lawsuits are described below.

May v. KushCo Holdings, Inc., et al. Filed April 30, 2019. Case No. 8:19-cv-00798-JLS-KES, U.S. District Court for the Central District of California. This putative shareholder class action against the Company and certain of its current and former officers alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and seeks unspecified compensatory damages and other relief on behalf of a class of purchasers of the Company’s securities between July 13, 2017 and April 9, 2019, inclusive. In September 2019, the Court appointed co-lead plaintiffs and co-lead counsel for the plaintiffs. The lead plaintiffs’ amended complaint was filed in November 2019. In February 2020, the Company moved to dismiss the amended complaint. The motion is pending. The Company intends to vigorously defend itself against these claims.

Salsberg v. Kovacevich, et al. Filed May 24, 2019. Case No. 8:19-cv-00998-JLS-KES, U.S. District Court for the Central District of California and Neysmith v. Baum, et al. Filed May 31, 2019. Case No. 8:19-cv-01070-JLS-KES, U.S. District Court for the Central District of California. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and disgorgement of profits, benefits, and compensation obtained by the defendants from the alleged conduct, to be paid to the Company. In September 2019, the Court consolidated these cases. In December 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Savage v. Kovacevich, et al. Filed June 14, 2019. Case No. 30-2019-01077191-CU-MC-NJC, Superior Court of California, County of Orange. This purported shareholder derivative action against certain current and former directors and officers alleges, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant and the plaintiff seeks, among other things, corporate governance reforms, and unspecified damages and restitution from the defendants, to be paid to the Company. In August 2019, the Court ordered a stay of this action pursuant to a stipulation of the parties.

Bruno, et al. v. Kovacevich, et al. Filed September 26, 2019. Case No. A-19-802660-C, Eighth Judicial District Court of the State of Nevada and Majchrzak v. Kovacevich, et al. Filed October 2, 2019. Case No. A-19-902945-B, First Judicial District Court of the State of Nevada. These purported shareholder derivative actions against certain current and former directors and officers allege, among other things, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Company is named as a nominal defendant in each action and the plaintiffs seek, among other things, equitable relief and unspecified damages from the defendants, to be paid to the Company. In May 2020, the Company accepted service of the complaints, and the plaintiffs have indicated that they intend to move to stay each action.

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2020 PLAN & RESTRUCTURING CHARGES

9 Months Ended

May 31, 2020

Restructuring Charges [Abstract]

2020 PLAN & RESTRUCTURING CHARGES

2020 PLAN & RESTRUCTURING CHARGES

During the second quarter of fiscal 2020, the Company adopted a comprehensive strategic plan (the “2020 Plan”) to more effectively execute the Company’s strategy of focusing its resources on more established, financially stable, and creditworthy customers (namely multi-state operators, licensed producers, and leading brands). In connection with the 2020 Plan, the Company began implementing a restructuring process that seeks to rationalize all aspects of its operations by, among other things, significantly reducing its overhead, implementing tighter expense controls, consolidating its warehouses, reducing its inventory, and drastically altering its sales strategy to focus more on these customers. The Company believes that this strategic shift and associated restructuring should result in a better forecast of demand, reduction of inventory and warehouse space, improved collections and cash flow, and potential revenue upside from these customers’ continued expansion and consolidation in the marketplace.

The Company has completed, or is in the process of completing, the following restructuring activities in connection with the 2020 Plan:

•Severance: The Company is in the process of implementing a more efficient and automated approach to serving a smaller more targeted group of customers, which will require substantially fewer dedicated sales representatives, project managers, warehouse personnel, and other related personnel. As part of this process, the Company determined that certain positions at the Company were no longer essential to the execution of the Company’s strategy going forward. As a result, the Company underwent reductions in force to right-size and better align its workforce with this new strategy. During the second quarter of fiscal 2020, the Company terminated 28 employees, and incurred $379 in severance-related restructuring costs. During the third quarter of fiscal 2020, the Company terminated 65 employees, and incurred $800 in severance-related restructuring costs.

•Facility-Related Lease Termination and Exiting Costs: As a result of the Company’s decision to discontinue nearly all of its stock inventory, the Company determined that it no longer needs the vast majority of its current warehouse space, and is currently in the process of negotiating with its landlords to terminate or sublease and exit the impacted warehouses. During the third quarter of fiscal 2020, the Company terminated leases and vacated its Las Vegas, Nevada, Santa Rosa, California, Osage, Colorado facilities and subleased its Garden Grove, California facility. The Company is planning to vacate additional facilities throughout the remainder of fiscal 2020 in order to consolidate its warehouse footprint. During the third quarter of fiscal 2020, the Company incurred $0.2 million in restructuring exit cost.

•Asset Impairment: With the Company’s planned facility closures, the Company has determined that the fair value of its fixed assets at these closing facilities is now below their carrying value, and that an impairment has occurred. The Company also determined that its product molds and tooling are no longer necessary assets, given its shift to focus exclusively on custom and best-selling stock inventory, creating an additional need for impairment. As a result, the Company recognized a total impairment charge related of approximately $3.9 million related to these fixed assets during the second quarter of its fiscal 2020. In addition, because of the Company’s decision to consolidate its warehouses, the Company determined that it will incur impairment charges to its ROU assets. Based on internal calculations, the Company recognized impairment charges related to these assets of $3.0 million during the second quarter of its fiscal 2020.

The Company expects to incur a total of $9.5 million in restructuring charges upon the completion of the 2020 Plan, which represents the Company’s best estimate as of May 31, 2020. The 2020 Plan is expected to be completed by the end of fiscal 2020. The recognition of restructuring charges requires that the Company make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reductions of workforce and facility, ROU and asset impairment costs. At the end of each reporting period, the Company will evaluate the remaining accrued balance to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed plans. The following table reflects the movement of activity of the restructuring reserve for the six months ended May 31, 2020:

	Severance related costs		Facility, ROU and asset impairment		Facility Exit Cost		Total
Balance at December 1, 2019	$	—	$	—	$	—	$	—
Provisions/Additions	1,182		6,895		176		8,253
Utilized/Paid	(1,002)		(6,895)		(176)		(8,073)
Balance at May 31, 2020	$	180	$	—	$	—	$	180

Expenses incurred under the 2020 Plan during the three and nine months ended May 31, 2020 are included within “Restructuring costs” in the condensed consolidated statements of operations.

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SUBSEQUENT EVENT

9 Months Ended

May 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENT

SUBSEQUENT EVENT

Third Exchange Agreement and Third Exchange Note

On June 9, 2020, the Company entered into a Third Exchange Agreement (the “Third Exchange Agreement”) with the Investor in order to (x) amend and waive certain provisions of the Purchase Agreement and the Second Amended Senior Note, and (y) exchange the Second Amended Senior Note without any cash consideration for (i) a new senior note in the aggregate principal amount of $22.0 million (the “Third Amended Senior Note”) and (ii) 5,347,594 shares of the Company’s common stock (the “Exchange Shares”).

Similar to the terms of the Second Amended Senior Note, the Third Amended Senior Note will mature on April 29, 2021, subject to the Investor’s right to extend such maturity date. Upon maturity, the Company must pay the Investor an amount in cash representing the aggregate outstanding principal, plus any accrued and unpaid interest and accrued and unpaid late charges. Similar to the terms of the Original Note, the Third Amended Senior Note will not bear interest except upon the occurrence (and during the continuance) of an Event of Default (as such term is defined in the Third Amended Senior Note), in which case the Third Amended Senior Note will bear interest at a rate of 18.0% per annum (the “Default Rate”).

The Third Amended Senior Note is redeemable by the Company at any time after the issuance in an amount equal to the outstanding principal and any accrued interest or late charges. The Third Amended Senior Note includes customary affirmative and negative covenants, including a limitation on the Company’s ability to incur additional indebtedness, subject to certain permitted exceptions. The Third Amended Senior Note includes customary events of default including, among others, payment defaults, breach of covenant defaults, bankruptcy and insolvency defaults, cross defaults with certain indebtedness, a change of control default, judgment defaults, and inaccuracies of representations and warranties defaults. Similar to the terms of the Original Note, the Investor may require the Company to redeem, upon the occurrence of an Event of Default, all or a portion of the Third Amended Senior Note at a redemption premium of 135% of the outstanding principal and any accrued interest or late charges. Similar to the terms of the Original Note, any amount of principal or other amounts due to the Investor under the Purchase Agreement or the Third Amended Senior Note that is not paid when due (except to the extent such amount is simultaneously accruing interest at the Default Rate) will result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 18.0% per annum from the date such amount was due until the same is paid in full.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

May 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the activity of KushCo Holdings, Inc. (the “Company”) and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included in the condensed consolidated financial statements for the interim periods presented herein, but are not necessarily indicative of operating results to be achieved for full fiscal years or other interim periods. The condensed consolidated balance sheet as of August 31, 2019 was derived from the audited financial statements as of that date but does not include all disclosures as required by GAAP. These condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year then ended and filed with the SEC on November 12, 2019.

References to amounts in these notes to condensed consolidated financial statements are in thousands, except per share amounts, unless otherwise specified.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period.

Significant estimates relied upon in preparing these condensed consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus, trade receivables do not bear interest. Trade accounts receivables are periodically evaluated for collectability based on the customer's past credit history and current financial condition. The Company’s net accounts receivable balance was $11,162 and $25,972 as of May 31, 2020 and August 31, 2019, respectively. The Company’s allowance for doubtful accounts was $3,660 and $1,058 as of May 31, 2020 and August 31, 2019, respectively. The increase in allowance for doubtful accounts was driven primarily by the deteriorating credit conditions in California exhibited by the Company’s customers in this market, which have significantly impacted the Company’s ability to collect, in part or in full, amounts owed by these customers. The Company’s sales return reserve was $506 and $477 as of May 31, 2020 and August 31, 2019, respectively, and is included in “Accounts receivable, net” on the Company’s condensed consolidated balance sheet.

Inventory

Inventory

Inventories are stated at the lower of cost or net realizable value using the average cost method. The Company’s inventory consists of finished goods of $24,048 and $43,768 as of May 31, 2020 and August 31, 2019, respectively. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company’s prepaid inventory

was $8,429 and $7,134 as of May 31, 2020 and August 31, 2019, respectively. The Company regularly reviews inventory and, when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life. As of May 31, 2020, the Company had $11,285 of inventory reserve. As of August 31, 2019, the Company had $2,640 of inventory reserve.

Equity Investment in Xtraction Services

Equity Investment

On January 30, 2020, the Company partnered with Xtraction Services Holding Corp (“Xtraction Services”), a provider of equipment leasing solutions to owners and operators of cannabis and hemp companies in the United States in order to provide such solutions to the Company’s network of regulated cannabis and cannabidiol (“CBD”) operators. The Company’s Chief Financial Officer, Stephen Christoffersen, has served on the board of directors for Xtraction Services since May 2019. Under the terms of its agreement with Xtraction Services, upon the closing of the transaction, the Company issued 1,653 of its common shares in exchange for 10,600 proportionate voting shares (the “XS Shares”) of Xtraction Services, the equivalent of 19.9% of Xtraction Services' market capitalization on the closing date. On January 30, 2020, the value of the Company's shares issued in exchange for the equity investment in Xtraction Services was $2,528. The Company’s investment in Xtraction Services is included in “Other assets” on the Company’s condensed consolidated balance sheet.

Net Loss Per Share

Net Loss Per Share

The Company computes earnings per share under Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share (“ASC 260”). Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method.

For the three and nine months ended May 31, 2020, basic and diluted weighted average shares are the same, as the Company generated a net loss for the period. The computation for the three and nine months ended May 31, 2020 does not include 11,368 options and 21,737 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

For the three and nine months ended May 31, 2019, net loss is adjusted for changes in fair value of warrants recorded as a liability (see Note 9 below) and weighted average diluted shares includes dilutive warrants. The computation of diluted net loss per share for the three and nine months ended May 31, 2019 does not include 12,662 options and 6,988 warrants, as their inclusion would have an anti-dilutive effect on net loss per share.

Revenue Recognition

Revenue Recognition

The Company markets and sells a wide variety of ancillary products and services to customers operating in the regulated medical and recreational cannabis and CBD industries. These complementary products and services include compliant and custom packaging products; vape hardware; hydrocarbons and solvents; natural products; stainless steel tanks; custom branded anti-counterfeit and authentication labels; hemp trading services; and retail services focused on CBD mass distribution, industry education and compliance.

In accordance with ASC 606, Revenue from Contracts with Customers, the Company applies the following steps to recognize revenue for the sale of products that reflects the consideration to which the Company expects to be entitled to receive in exchange for the promised goods:

•Identify the contract with a customer.

•Identify the performance obligations in the contract.

•Determine the transaction price.

•Allocate the transaction price to the performance obligations in the contract.

•Recognize revenue when the Company satisfies a performance obligation.

Advertising

Advertising

The Company conducts advertising for the promotion of its products and services. In accordance with ASC subtopic 720-35-25 (“ASC 720”), advertising costs are charged to expense when incurred. Advertising costs were $21 and $207 for the three

months ended May 31, 2020 and May 31, 2019, respectively. Advertising costs were $199 and $877 for the nine months ended May 31, 2020 and May 31, 2019, respectively.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The ASU removes, modifies, and adds certain disclosure requirements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine its impact it may have on its financial statements.

In January 2020, the FASB issued ASU 2020-1, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-1made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the potential impact of adoption of this standard on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Fair Value Measurement, Policy

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

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PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

May 31, 2020

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

The major classes of fixed assets consist of the following:

	May 31, 2020		August 31, 2019
Machinery and equipment	$	6,116	$	4,430
Vehicles	540		603
Office Equipment	3,395		3,232
Leasehold improvements	1,963		3,296
Construction in progress	661		1,930
	12,675		13,491
Accumulated Depreciation	(3,379)		(2,437)
	$	9,296	$	11,054

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INTANGIBLE ASSETS (Tables)

9 Months Ended

May 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible assets

Intangible assets consist of the following:

		As of May 31, 2020						As of August 31, 2019
Description	Weighted Average Estimated Useful Life	Gross Carrying Value		Accumulated Amortization		Net Amount		Gross Carrying Value		Accumulated Amortization		Net Amount
Trade name	6 years	2,600		(1,336)		1,264		2,600		(1,011)		1,589
Non-compete agreement	4 years	2,370		(1,241)		1,129		2,370		(856)		1,514
		$	4,970	$	(2,577)	$	2,393	$	4,970	$	(1,867)	$	3,103

Schedule of remaining estimated amortization of definite-lived intangible assets

The following table summarizes the remaining estimated amortization of definite-lived intangible assets as of May 31, 2020:

For the year ended August 31,
2020 (remaining three months)	$	237
2021	881
2022	747
2023	528
	$	2,393

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

9 Months Ended

May 31, 2020

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Schedule of accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

	May 31, 2020		August 31, 2019
Accrued compensation	2,532		3,485
Sales tax payable	745		1,047
Lease liability	1,605		—
Other accrued expenses	5,542		1,936
	$	10,424	$	6,468

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LEASES (Tables)

9 Months Ended

May 31, 2020

Lessee Disclosure [Abstract]

Summary of lease liabilities

Lease liabilities as of May 31, 2020 consist of the following:

Current portion of lease liabilities	$	1,605
Long term lease liabilities, net of current portion	4,562
Total lease liabilities	$	6,167

Summary of aggregate lease maturities

Aggregate lease maturities as of May 31, 2020 are as follows:

Year ended August 31,
2020 (remaining three months)	$	647
2021	2,054
2022	1,968
2023	1,362
2024	764
Thereafter	579
Total minimum lease payments	7,374
Less imputed interest	(1,207)
Total lease liabilities	$	6,167

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

May 31, 2020

Fair Value Disclosures [Abstract]

Schedule of fair value of financial instruments

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 2 assets and the Level 3 liabilities:

	Fair Value at May 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	2,060	$	—	$	2,060	$	—
Liabilities:
Warrant liability	$	2,009	$	—	$	—	$	2,009

	Fair Value at August 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Equity investment	$	592	$	—	$	592	$	—
Liabilities:
Warrant liability	$	5,444	$	—	$	—	$	5,444

Schedule of fair value warrant liability

The following table reflects adjustments to the estimated fair value of the Company’s warrant liability with respect to the 2018 Warrants measured using Level 3 inputs:

	Warrant Liability
As of August 31, 2019	$	5,444
Adjustments to estimated fair value	(3,204)
As of November 30, 2019	2,240
Adjustments to estimated fair value	(1,391)
As of As of February 29, 2020	849
Adjustments to estimated fair value	1,160
As of May 31, 2020	$	2,009

	Warrant Liability
As of August 31, 2018	$	14,430
Adjustments to estimated fair value	216
As of November 30, 2018	14,646
Adjustments to estimated fair value	(1,271)
As of February 28, 2019	13,375
Adjustments to estimated fair value	(5,965)
As of May 31, 2019	$	7,410

Schedule of fair value contingent acquisition liabilities

The following table reflects the changes in fair value of the Company’s contingent consideration payable measured using Level 3 inputs:

	Contingent Consideration Payable
As of August 31, 2018	$	5,488
Change in fair value	394
As of November 30, 2018	5,882
Change in fair value	(5,602)
Cash payments	(140)
Settled in shares- Hybrid	(140)
As of As of February 28, 2019	—
Change in fair value	2,961
As of May 31, 2019	$	2,961

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STOCKHOLDERS' EQUITY (Tables)

9 Months Ended

May 31, 2020

Stockholders' Equity Note [Abstract]

Schedule of assumptions used

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended May 31, 2020 and May 31, 2019:

	Nine Months Ended
	May 31, 2020	May 31, 2019
Expected term in years	5.3 – 5.9	1-3
Expected volatility	64% – 120%	69% – 87%
Risk-free interest rate	0.3% – 1.7%	2.3% – 3.0%
Expected dividend yield	0.0%	0.0%

Schedule of stock option activity

The following table summarizes the Company's stock option activity during the nine months ended May 31, 2020:

	Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Balance Outstanding, August 31, 2019	14,761	$	4.89	9.0	$	3,192
Granted	3,667	2.24
Exercised	(9)	2.06			$	14
Forfeited	(7,051)	4.74
Balance Outstanding, May 31, 2020	11,368	$	4.10	8.4	$	358
Vested and expected to vest at May 31, 2020	10,187	4.13		8.3	$	285
Exercisable, May 31, 2020	5,998	$	4.40	7.9	$	26

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2020 PLAN & RESTRUCTURING CHARGES (Tables)

9 Months Ended

May 31, 2020

Restructuring Charges [Abstract]

Schedule of movement of activity of the restructuring reserve

	Severance related costs		Facility, ROU and asset impairment		Facility Exit Cost		Total
Balance at December 1, 2019	$	—	$	—	$	—	$	—
Provisions/Additions	1,182		6,895		176		8,253
Utilized/Paid	(1,002)		(6,895)		(176)		(8,073)
Balance at May 31, 2020	$	180	$	—	$	—	$	180

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SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands		3 Months Ended			9 Months Ended
	Jan. 30, 2020	May 31, 2020	Feb. 29, 2020	May 31, 2019	May 31, 2020	May 31, 2019	Aug. 31, 2019
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Allowance for doubtful accounts		$ 3,660			$ 3,660		$ 1,058
Sales return reserve		506			506		477
Inventory finished goods		24,048			24,048		43,768
Prepaid inventory		8,429			8,429		7,134
Inventory reserve		11,285			11,285		$ 2,640
Shares issued in exchange for equity investment in Xtraction Services			$ 2,528		2,528	$ 0
Advertising costs		$ 21		$ 207	$ 199	$ 877
Options
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Exclusion of shares that have an anti-dilutive effect on net loss per share		11,368		12,662	11,368	12,662
Warrant
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Exclusion of shares that have an anti-dilutive effect on net loss per share		21,737		6,988	21,737	6,988
Common Stock
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Shares issued for exchange	1,653		1,653
Shares issued in exchange for equity investment in Xtraction Services			$ 2
Xtraction Services
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Percentage of equity interests received	19.90%
Shares exchanged for common stock	10,600
Shares issued in exchange for equity investment in Xtraction Services	$ 2,528

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CONCENTRATIONS OF RISK (Details)	9 Months Ended
	May 31, 2020 vendor customer	May 31, 2019 vendor customer
Purchase | Supplier Concentration Risk
Concentration Risk [Line Items]
Concentration Risk, Benchmark Description	one vendor which accounted for approximately 33% and 37%, respectively, of total inventory purchases	one vendor which accounted for approximately 33% and 37%, respectively, of total inventory purchases
Number of vendors | vendor	1	1
Concentration risk, percentage	33.00%	42.00%
Accounts Payable | Supplier Concentration Risk
Concentration Risk [Line Items]
Number of vendors | vendor	2	2
Concentration risk, percentage	23.00%	42.00%
Revenue | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%	10.00%
Number of customer | customer	0	1
Accounts Receivable | Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	47.00%	24.00%
Number of customer | customer	2	1

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RELATED-PARTY TRANSACTIONS (Details) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020 USD ($) relatedParty	May 31, 2019 USD ($) relatedParty	May 31, 2020 USD ($)	May 31, 2019 USD ($)	Aug. 31, 2019 USD ($)
Related Party Transactions [Abstract]
Number of related parties | relatedParty	2	2
Sales recognized from related parties	$ 113	$ 40	$ 1,299	$ 99
Total accounts receivable from related parties	755		755		$ 465
Total payments made to related party	$ 0	$ 112	$ 231	$ 210

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019	Aug. 31, 2019
PROPERTY AND EQUIPMENT
Property and equipment, gross	$ 12,675		$ 12,675		$ 13,491
Accumulated Depreciation	(3,379)		(3,379)		(2,437)
Property and equipment, net	9,296		9,296		11,054
Depreciation expense	990	$ 397	2,549	$ 965
Machinery and equipment
PROPERTY AND EQUIPMENT
Property and equipment, gross	6,116		6,116		4,430
Vehicles
PROPERTY AND EQUIPMENT
Property and equipment, gross	540		540		603
Office Equipment
PROPERTY AND EQUIPMENT
Property and equipment, gross	3,395		3,395		3,232
Leasehold improvements
PROPERTY AND EQUIPMENT
Property and equipment, gross	1,963		1,963		3,296
Construction in progress
PROPERTY AND EQUIPMENT
Property and equipment, gross	$ 661		$ 661		$ 1,930

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PROPERTY AND EQUIPMENT - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 990	$ 397	$ 2,549	$ 965

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INTANGIBLE ASSETS - Intangible assets (Details) - USD ($) $ in Thousands	9 Months Ended
	May 31, 2020	Aug. 31, 2019
Acquired Finite-Lived Intangible Assets [Line Items]
Gross carrying value	$ 4,970	$ 4,970
Accumulated amortization	(2,577)	(1,867)
Net Amount	$ 2,393	3,103
Trade name
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average estimated useful life	6 years
Gross carrying value	$ 2,600	2,600
Accumulated amortization	(1,336)	(1,011)
Net Amount	$ 1,264	1,589
Non-compete agreement
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average estimated useful life	4 years
Gross carrying value	$ 2,370	2,370
Accumulated amortization	(1,241)	(856)
Net Amount	$ 1,129	$ 1,514

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INTANGIBLE ASSETS - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 237	$ 237	$ 710	$ 746

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INTANGIBLE ASSETS - Amortization expense (Details) - USD ($) $ in Thousands	May 31, 2020	Aug. 31, 2019
Year ended August 31,
2020 (remaining three months)	$ 237
2021	881
2022	747
2023	528
Net Amount	$ 2,393	$ 3,103

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	May 31, 2020	Aug. 31, 2019
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued compensation	$ 2,532	$ 3,485
Sales tax payable	745	1,047
Lease liability	1,605	0
Other accrued expenses	5,542	1,936
Accrued expenses and other current liabilities	$ 10,424	$ 6,468

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LEASES (Details) - USD ($) $ in Thousands	May 31, 2020	May 31, 2019
Lessee, Lease, Description [Line Items]
Weighted average discount rate		8.50%
Lease liabilities	$ 6,167
ASU 2016-02 | Restatement
Lessee, Lease, Description [Line Items]
Weighted average discount rate	10.70%
Lease liabilities	$ 7,600
ROU assets	$ 6,800

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LEASES - Lease liabilities (Details) $ in Thousands	May 31, 2020 USD ($)
Lease Liabilities
Current portion of lease liabilities	$ 1,605
Long term lease liabilities, net of current portion	4,562
Total lease liabilities	$ 6,167

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LEASES - Aggregate lease maturities (Details) $ in Thousands	May 31, 2020 USD ($)
Aggregate lease maturities
2020 (remaining three months)	$ 647
2021	2,054
2022	1,968
2023	1,362
2024	764
Thereafter	579
Total minimum lease payments	7,374
Less imputed interest	(1,207)
Total lease liabilities	$ 6,167

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LEASES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019
Lessee Disclosure [Abstract]
Rent expense	$ 590		$ 2,279
Weighted average remaining lease term		3 years 8 months 12 days		3 years 8 months 12 days
Weighted average discount rate		8.50%		8.50%
Rent expense under ASC 840		$ 720		$ 2,226

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DEBT - Monroe Revolving Credit Facility (Details) - USD ($)		3 Months Ended	9 Months Ended
	Aug. 21, 2019	May 31, 2020	May 31, 2020	May 31, 2019	Aug. 31, 2019
Line of Credit Facility [Line Items]
Amortization of debt discount			$ 3,902,000	$ 0
Monroe Revolving Credit Facility
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 35,000,000.0
Additional borrowing capacity	$ 15,000,000.0
Debt instrument, term	5 years		5 years
Outstanding amount		$ 0	$ 0		$ 12,300,000
Closing costs incurred			2,602,000
Unamortized debt issuance costs		2,194,000	2,194,000
Interest expense		73,000	528,000
Amortization of debt discount		$ 154,000	$ 461,000

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DEBT - Monroe Warrants (Details) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	May 31, 2020 USD ($) $ / shares	May 31, 2020 USD ($) $ / shares	Aug. 31, 2019 $ / shares	Aug. 21, 2019 $ / shares shares
Line of Credit Facility [Line Items]
Common stock, par value	$ 0.001	$ 0.001	$ 0.001
Monroe Subscription Agreement
Line of Credit Facility [Line Items]
Warrants issued | shares				500
Warrants exercise price				$ 4.25
Percentage of outstanding principal for repayment				1.20
Term of warrants				5 years
Amortization expense | $	$ 50	$ 148
Exchange Agreement
Line of Credit Facility [Line Items]
Warrants issued | shares				650
Warrants exercise price				$ 4.25

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DEBT - Long-term Debt (Details)	Apr. 29, 2019 USD ($)	May 31, 2020 $ / shares	Nov. 08, 2019 USD ($)	Aug. 31, 2019 $ / shares	Aug. 21, 2019 $ / shares shares
Line of Credit Facility [Line Items]
Common stock, par value | $ / shares		$ 0.001		$ 0.001
Exchange Agreement
Line of Credit Facility [Line Items]
Warrants issued | shares					650
Warrants exercise price | $ / shares					$ 4.25
Second Exchange Agreement
Line of Credit Facility [Line Items]
Aggregate principal amount			$ 24,000,000.0
Issue discount			$ 1,500,000
Percentage of outstanding principal for repayment			1.20
Private placement offering (the "Private Placement") | Securities Purchase Agreement (the "Purchase Agreement")
Line of Credit Facility [Line Items]
Aggregate principal amount	$ 21,300,000
Issue discount	1,300,000
Proceeds from private placement	$ 20,000,000.0

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DEBT - PPP Loan (Details) $ in Millions	Apr. 30, 2020 USD ($)
Paycheck Protection Program
Short-term Debt [Line Items]
Proceeds from Issuance of Debt	$ 1.9

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WARRANT LIABILITY (Details) - Derivative Warrant Liability	3 Months Ended		9 Months Ended
	May 31, 2020 USD ($)	May 31, 2019 USD ($)	May 31, 2020 USD ($)	May 31, 2019 USD ($)	Aug. 31, 2019 USD ($)	Jun. 30, 2018 USD ($) $ / shares shares
Credit Derivatives [Line Items]
Warrants issued | shares						3,750
Warrants exercise price | $ / shares						$ 5.28
Term of warrants						5 years
Estimated fair value of outstanding warrant liabilities	$ 2,009,000		$ 2,009,000		$ 5,444,000	$ 15,350,000
Changes in derivative liability	$ 1,160,000	$ (6,254,000)	$ (3,435,000)	$ (7,309,000)
Stock price
Credit Derivatives [Line Items]
Measurement input	1.19		1.19
Volatility
Credit Derivatives [Line Items]
Measurement input	1.195		1.195
Risk-free rate
Credit Derivatives [Line Items]
Measurement input	0.22		0.22
Annual dividend yield
Credit Derivatives [Line Items]
Measurement input	0		0
Expected life
Credit Derivatives [Line Items]
Term of warrants	3 years		3 years

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - Recurring - USD ($) $ in Thousands	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	Aug. 31, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018	Aug. 31, 2018
Assets:
Equity investment	$ 2,060			$ 592
Liabilities
Warrant liability	2,009			5,444
Level 1
Assets:
Equity investment	0			0
Liabilities
Warrant liability	0			0
Level 2
Assets:
Equity investment	2,060			592
Liabilities
Warrant liability	0			0
Level 3
Assets:
Equity investment	0			0
Liabilities
Warrant liability	2,009			5,444
Level 3 | Derivative Warrant Liability
Liabilities
Warrant liability	$ 2,009	$ 849	$ 2,240	$ 5,444	$ 7,410	$ 13,375	$ 14,646	$ 14,430

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Activity for Warrant derivative Liability (Details) - Recurring - USD ($) $ in Thousands	3 Months Ended
	May 31, 2020	Feb. 29, 2020	Nov. 30, 2019	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance			$ 5,444
Ending Balance	$ 2,009
Level 3
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance			5,444
Ending Balance	2,009
Level 3 | Derivative Warrant Liability
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	849	$ 2,240	5,444	$ 13,375	$ 14,646	$ 14,430
Adjustments to estimated fair value	1,160	(1,391)	(3,204)	(5,965)	(1,271)	216
Ending Balance	$ 2,009	$ 849	$ 2,240	$ 7,410	$ 13,375	$ 14,646

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Contingent acquisition liabilities (Details) - Contingent consideration - USD ($) $ in Thousands	3 Months Ended
	May 31, 2019	Feb. 28, 2019	Nov. 30, 2018
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 0	$ 5,882	$ 5,488
Change in Fair Value	2,961	(5,602)	394
Cash payment		(140)
Settled in shares		(140)
Ending balance	$ 2,961	$ 0	$ 5,882

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Additional Information (Details)	Sep. 21, 2018 shares
Smoke Cartel, Inc.
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Common stock issued for consideration to sell a web domain and inventory related to the Company's Roll-uh-Bowl ("RUB") product line	1,410

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STOCKHOLDERS' EQUITY - Additional Information 1 (Details) - USD ($) $ / shares in Units, $ in Thousands				1 Months Ended		3 Months Ended		9 Months Ended
	Feb. 06, 2020	Sep. 30, 2019	Sep. 26, 2019	Feb. 29, 2020	Sep. 30, 2019	May 31, 2020	May 31, 2019	May 31, 2020	May 31, 2019	Aug. 31, 2019
Stockholders Equity [Line Items]
Preferred stock, shares authorized						10,000		10,000		10,000
Preferred stock, par value (in dollars per share)						$ 0.001		$ 0.001		$ 0.001
Preferred stock, shares issued						0		0		0
Preferred stock, shares outstanding						0		0		0
Common stock, shares authorized						265,000		265,000		265,000
Common stock, par value (in dollars per share)						$ 0.001		$ 0.001		$ 0.001
Common stock, shares issued						119,933		119,933		90,041
Common stock, shares outstanding						119,933		119,933		90,041
Share-based Payment Arrangement, Noncash Expense								$ 11,074	$ 8,839
Common Stock
Stockholders Equity [Line Items]
Share-based Payment Arrangement, Noncash Expense						$ 2,985	$ 2,667	$ 11,074	$ 8,839
Securities Purchase Agreement (the "Purchase Agreement")
Stockholders Equity [Line Items]
Issuance of common stock and warrants for cash, net of offering costs (in shares)	10,000		17,198
Warrants exercise price	$ 1.60	$ 2.25	$ 1.75	$ 2.00	$ 2.25
Gross proceeds from the Offering	$ 16,000	$ 30,100
Term Of Warrants Exercisable				5 years	5 years
Net Proceeds After Deducting Placement Agent Fees And Estimated Offering Expense				$ 14,600	$ 27,400

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STOCKHOLDERS' EQUITY - Schedule of assumptions used (Details)	9 Months Ended
	May 31, 2020	May 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield	0.00%	0.00%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term in years	5 years 3 months 18 days	1 year
Expected volatility	64.00%	69.00%
Risk-free interest rate	0.30%	2.30%
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term in years	5 years 10 months 24 days	3 years
Expected volatility	120.00%	87.00%
Risk-free interest rate	1.70%	3.00%

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STOCKHOLDERS' EQUITY - Stock option activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	Nov. 30, 2019	May 31, 2020	Feb. 29, 2020
Stock Options
Beginning, balance outstanding	14,761	14,761
Granted		3,667
Exercised		(9)
Forfeited		(7,051)
Ending, balance outstanding		11,368
Vested and expected to vest		10,187
Exercisable		5,998
Weighted Average Exercise Price
Beginning, balance outstanding	$ 4.89	$ 4.89
Granted		2.24
Exercised		2.06
Forfeited		4.74
Ending, balance outstanding		4.10
Vested and expected to vest		$ 4.13
Exercisable			$ 4.40
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	9 years	8 years 4 months 24 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	9 years	8 years 4 months 24 days
Vested and expected to vest		8 years 3 months 18 days
Weighted Average Remaining Contractual Term Exercisable		7 years 10 months 24 days
Aggregate intrinsic value, beginning balance outstanding	$ 3,192	$ 3,192
Aggregate Intrinsic Value Granted
Aggregate Intrinsic Value, Exercised		14
Aggregate Intrinsic Value, Forfeited
Aggregate intrinsic value, ending balance outstanding		358
Aggregate Intrinsic Value, Vested and expected to vest		285
Aggregate Intrinsic Value Exercisable		$ 26

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STOCKHOLDERS' EQUITY - Additional Information 3 (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2019	Nov. 30, 2018	May 31, 2020	May 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to non-vested share			$ 12,482
Weighted-average period, cost expected to be recognized			1 year 8 months 12 days
Weighted average remaining contractual term	9 years		8 years 4 months 24 days
Value of common shares issued on exercise of option		$ 42
Stock option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense			$ 7,348	$ 5,740
Weighted-average grant-date fair value of options granted			$ 1.39	$ 2.59
2016 Stock Incentive Plan (the Plan)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares issued			18,000
Weighted average remaining contractual term			10 years
2016 Stock Incentive Plan (the Plan) | Stock option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			3 years

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STOCKHOLDERS' EQUITY - Additional Information 4 (Details) - USD ($) $ in Thousands	9 Months Ended
	May 31, 2020	May 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock issued to investor in exchange for services	533	295
Value of stock issued to investor in exchange for services	$ 662	$ 377
Stock issued during period value for current and prepaid services		1,654
Weighted-average period, cost expected to be recognized	1 year 8 months 12 days
Prepaid expenses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Value of stock issued to investor in exchange for services		1,277
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense	$ 3,726	$ 3,099
Unrecognized compensation cost related to non-vested share	$ 2,329
Weighted-average period, cost expected to be recognized	1 year 3 months 18 days
Restricted Stock Awards | Directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock issued to investor in exchange for services	174

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2020 PLAN & RESTRUCTURING CHARGES (Details) $ in Thousands	3 Months Ended			6 Months Ended	9 Months Ended
	May 31, 2020 USD ($) employee	Feb. 29, 2020 USD ($) employee	May 31, 2019 USD ($)	May 31, 2020 USD ($)	May 31, 2020 USD ($)	May 31, 2019 USD ($)
RESTRUCTURING CHARGES
Number of employees terminated | employee	65	28
Severance-related restructuring costs	$ 800	$ 379
Impairment of fixed assets		3,900
Impairment charges to its right-of-use		3,000
Restructuring charges	9,500
Restructuring reserve
Restructuring reserve, beginning balance		0		$ 0
Provisions/Additions	952		$ 0	8,253	$ 8,253	$ 0
Utilized/Paid				(8,073)
Restructuring reserve, ending balance	180			180	180
Severance related costs
Restructuring reserve
Restructuring reserve, beginning balance		0		0
Provisions/Additions				1,182
Utilized/Paid				(1,002)
Restructuring reserve, ending balance	180			180	180
Facility, ROU and asset impairment
Restructuring reserve
Restructuring reserve, beginning balance		0		0
Provisions/Additions				6,895
Utilized/Paid				(6,895)
Restructuring reserve, ending balance	0			0	0
Facility exit cost
Restructuring reserve
Restructuring reserve, beginning balance		$ 0		0
Provisions/Additions				176
Utilized/Paid				(176)
Restructuring reserve, ending balance	$ 0			$ 0	$ 0

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SUBSEQUENT EVENT (Details) - USD ($)	Jun. 09, 2020	May 31, 2020	Aug. 31, 2019
Subsequent Event [Line Items]
Common stock, par value		$ 0.001	$ 0.001
Subsequent Event | The Third Exchange Agreement | Senior Notes
Subsequent Event [Line Items]
Aggregate principal amount	$ 22,000,000.0
Stock Issued in Transaction, Shares	5,347,594
Debt Instrument, Interest Rate, Stated Percentage	18.00%
Debt Instrument, Redemption Price, Percentage	135.00%

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Label	Element	Value
Increase (Decrease) in Other Noncurrent Liabilities	us-gaap_IncreaseDecreaseInOtherNoncurrentLiabilities	$ 0
Increase (Decrease) in Other Noncurrent Liabilities	us-gaap_IncreaseDecreaseInOtherNoncurrentLiabilities	$ 752,000