Scott's Miracle-Gro is mentioned in both of the news articles below. The first link is an article from Technical420. The second link is from the Motley Fool. Surna will get some attention soon...
https://technical420.com/cannabis-article/ancillary-cannabis-companies-should-be-something-investors-take-a-very-close-look-at/#
Ancillary Cannabis Companies Should Be Something Investors Take A Very Close Look At
STOCKS Aug 13, 2021 • 7:17 AM EDT
Last week, The Scotts Miracle-Gro Company (NYSE: SMG) released third quarter financial results and reported strong growth from its Hawthorne business. During the period, the entire company recorded an 8% increase in sales growth and benefited from Hawthorne recording a 48% increase in sales.
We believe the earnings report sheds a favorable light on the ancillary cannabis vertical and are favorable on the growth that Scotts reported from Hawthorne. 2021 has been a roller coaster ride for Scotts’ stock price and the shares have fallen more than 30% from its April highs. During the last quarter, several Wall Street broker-dealers have lowered their price target on Scotts and we will monitor this trend following the earnings report.
The Scotts Miracle-Gro Company is the world’s leading marketer of branded consumer lawn and garden as well as indoor and hydroponic growing products. Several Wall Street firms cover the company and broker-dealers considered the business to be one of the best ways to be levered to the growth of the cannabis market.
Hawthorne Continues to be Scotts’ Primary Growth Driver
During the quarter, Scotts reported to have generated $1.61 billion of revenue. When analyzing the performance of its US Consumer segment and its Hawthorne segment, sales declined 4% (to $1.05 billion from $1.09 billion) and increased by 48% (to $421.9 million from $285.7 million), respectively. From an income standpoint, the US Consumer segment recorded a double-digit percentage decline and generated $264.4 of income (down 16%), while the Hawthorne segment recorded double-digit percentage gain and generated $51.9 million of income (a 37% increase).
An important item to highlight from the quarterly earnings report is related to the timing of it. Due to Scotts’ fiscal calendar, the third quarter of 2021 began six days later than the third quarter of 2020. Those six days were during the peak lawn and garden selling season which impacted sales for the quarter by approximately $115 million on a company-wide basis.
Hawthorne was a bright spot of Scotts earning report and the division recorded growth in every product category and across every major geographic market. During the quarter, the North America lighting market continued to be a key growth driver for the entire company and the category recorded a 77% increase in revenue. Two other attractive growth categories were nutrient sales (revenue increased by 54%) and growing media (revenue increased by 33%).
Another important trend from the quarter is related to how Scotts’ brands (i.e. Gavita, General Hydroponics, Mother Earth, and Botanicare) significantly outperformed the brands that it distributes in each of their respective categories and we are bullish on this. We believe the outperformance by the brands that Scotts’ owns is a key theme for our readers to be aware of and will monitor how they continue to perform.
Growing Through Strategic Acquisitions
In an effort to grow the Hawthorne business, Scotts reported to have acquired HydroLogic Purification Systems. The transaction is expected to be immediately accretive to Scotts and is forecasted to add approx. $20 million in annualized sales. The California based company is considered to be a leading provider of products, accessories, and systems for water filtration and purification in the cannabis industry.
HydroLogic will expand Hawthorne’s brand portfolio to include water filtration and purification products. One of the reasons for our favorable view on the transaction is related to the type of clients that work with HydroLogic. According to the press release, commercial growers make up approximately half of HydroLogic’s sales and these clients typically require custom builds for their water purification and filtration needs.
Under the terms of the transaction, Hawthorne will acquire the business assets and operations of HydroLogic for $65 million. Going forward, Hawthorne intends to retain the Santa Cruz facility (which includes distribution and assembly) and we will monitor how the companies are able to integrate.
When compared to previous acquisitions by Scotts, the HydroLogic transaction is on the smaller side. We consider the acquisition to be strategic as it will significant strengthen Scotts’ portfolio of signature brands as well as its relationships with commercial growers. Going forward, Scotts plans to continue to make acquisitions for both its Hawthorne and US Consumer business units.
Scotts’ management team announced that it plans to announce additional acquisitions in the near future. We are favorable on the company’s plans to grow through strategic acquisitions and through organic growth opportunities. We continue to view Hawthorne as the most attractive division of Scotts’ and will monitor how the management team is able to continue to growth the business.
Companies that Could be Acquisition Targets
Following the acquisition of HydroLogic and the management team’s commentary about future acquisitions, we want to highlight operators that could be considered acquisition targets. We believe the ancillary cannabis market is an attractive vertical of the industry and expect to see more acquisitions reported before the end of the calendar year.
Although GrowGeneration Corporation (Nasdaq: GRWG) seems to be a potential acquisition target, we believe the current valuation is too high for Scotts. At current levels, GrowGeneration is valued at almost $2.5 billion and Scotts is valued at less than $10 billion (by market capitalization). Based on the amount of revenue that is being generated by each company, we believe that GrowGeneration is receiving a larger premium from the market and expect this to negatively impact the chances of a merger or acquisition.
A few weeks ago, Surna, Inc. (OTC: SRNA) released preliminary quarterly financial results that showed impressive growth on a variety of key operational metrics. With a valuation that is below $20 million (by market capitalization), we find Surna to be a more attractive acquisition target for a business like Scotts.
In the preliminary earnings report, Surna reported strong revenue growth and we believe the market is discounting the growth prospects that are associated with the business. So far this year, Surna has increased the types of products and services that it provides to clients and are favorable on how the management team has been advancing the business.
When making acquisitions, there are a lot of factors that need to be analyzed by the acquirer. From the amount of cash on hand to the amount of backlog, we believe that Surna possesses the traits that make the business an acquisition target for larger operators like Scotts or GrowGeneration.
During the last quarter, Surna has been nothing short of an execution story and we are favorable on the recent addition of a highly qualified Chief Financial Officer (CFO) to the management team. We believe that Surna has a compelling valuation when compared to Scotts or GrowGeneration and is an opportunity to be aware of.
https://www.fool.com/investing/2021/09/12/2-cannabis-stocks-that-can-soar-even-if-the-us-doe/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article&yptr=yahoo
2 Cannabis Stocks That Can Soar Even if the U.S. Doesn't Legalize Marijuana
Their businesses don't deal with the marijuana plant directly, so they can freely expand and grow across the country.
David Jagielski
(TMFdjagielski)
Sep 12, 2021 at 7:11AM
Author Bio
Key Points
• Agrify and Scotts Miracle-Gro are pick-and-shovel investment options that help growers in the cannabis industry get started and expand their operations.
• Both of these companies are in an excellent position to generate more growth as more states legalize marijuana use.
• Agrify is a riskier option with potentially more upside, while Scotts is a relatively safe way to gain exposure to the cannabis industry.
Where should you invest $1,000 right now?
Cannabis stocks have been struggling over the past six months, with the Horizons Marijuana Life Sciences ETF down more than 30% while the S&P 500 has risen by 17%. Though optimism was high when the Democrats took control of the Senate earlier this year, a lack of progress with respect to the federal legalization of marijuana may have led investors to look for other near-term growth opportunities instead. Although the majority of Americans are in favor of legalizing pot federally, it still could take years before that happens.
But there are some cannabis stocks that can do well even if the U.S. government doesn't legalize marijuana anytime soon. Pick-and-shovel plays like Agrify (NASDAQ:AGFY) and Scotts Miracle-Gro (NYSE:SMG) aren't plant-touching businesses, so they don't need legalization to expand and grow throughout the country. And as more states legalize marijuana use, that will open up more opportunities for these companies, regardless of what happens with marijuana at the federal level.
IMAGE SOURCE: GETTY IMAGES.
1. Agrify
Agrify provides premium grow solutions that can help cannabis producers improve efficiency and get the most out of their products. In an industry where many businesses are still incurring losses, those solutions could be in high demand. Specifically, the company's vertical farming units (VFUs) allow a producer to grow plants in a vertical arrangement, which can save significant space that translates into cost savings. For cannabis businesses that may be intimidated by the need for large greenhouse operations, an efficient solution involving VFUs can make it easier to get started.
Today, Agrify is still a business in its early growth stages, but if its VFUs prove to be the real deal, this could be an incredibly promising growth stock to own. Agrify posted its second-quarter results Aug. 12, and sales of $11.8 million for the period ending June 30 were more than triple the revenue it generated in the prior-year period. Management anticipates that sales could top $50 million in 2021. That would be more than four times the $12 million in revenue it reported in 2020.
Although the company remains in the red and will likely continue to generate losses, the business is in good shape to continue growing regardless. As of the end of Q2, Agrify had $79.8 million in cash and cash equivalents -- far in excess of the $13.8 million it burned through in its operating activities over the past six months.
There's some risk with Agrify in how popular its VFUs will end up being with cannabis producers, but this is a stock that investors should certainly keep a close eye on.
2. Scotts Miracle-Gro
A safer pick-and-shovel play for cannabis investors is hydroponics and gardening company Scotts Miracle-Gro. Like Agrify, Scotts can help cannabis producers with their growing operations. Through the use of hydroponics, which involves a system of pumps and pipes that require no soil, companies can save on space and eliminate the need for a complex greenhouse to grow their crops. The cannabis part of Scotts' business falls under its Hawthorne Gardening Company subsidiary; meanwhile, its largest operating unit is its U.S. consumer segment, which offers traditional gardening tools and supplies. That gives investors a safe and reliable business to fall back on, plus the opportunity to cash in from growth in the cannabis sector.
And Scotts is diving even deeper into cannabis with last month's announcement of a new subsidiary, The Hawthorne Collective, "which will focus on strategic minority investments in areas of the cannabis industry not currently pursued by The Hawthorne Gardening Company." Scotts is banking on the expertise it has developed in running Hawthorne Gardening for several years to identify investment opportunities in the cannabis sector. Given the company's exceptional results, it's easy to see why management feels comfortable diverting some of its money to new investment opportunities; for the trailing 12 months, Scotts has generated free cash flow of $210 million. And its cash from operating activities has totaled $308 million -- many cannabis producers struggle to stay cash flow positive.
The new investment subsidiary will open up more opportunities, but it's not as if the overall business is struggling to grow. For the period ending July 3, Hawthorne Gardening's sales of $421.9 million grew at a rate of 48% year over year. The U.S. consumer segment (the lawn and garden business), which still accounts for the majority of Scotts' revenue at just over $1 billion, was down 4% -- but it went up against some tough comparables during the early stages of the pandemic, having hit record levels last year. Overall, the company's net income remained strong at $225.9 million, up more than 11% from the same period last year.
For investors who want a safer option to invest in the cannabis industry, Scotts is an easy choice. And with its shares falling 27% in the past six months for no discernible reason besides bearishness in the marijuana sector, now may be a great time to pick up the stock at a reduced price.
