Scotts Miracle-Gro reports success in hydroponics sector, keeps cannabis plans at forefront

Scotts Miracle-Gro’s wade into the waters of the emerging cannabis industry via hydroponics already has accounted for a “big jolt” in overall sales.

And the lawn-and-garden giant isn’t changing course after the results of the 2016 state and federal elections, the company’s CEO said Tuesday, adding that the “size of the prize in hydro” for Scotts may be even bigger than previously thought.

“Longer term, I can’t tell you that we won’t do more (acquisitions),” Jim Hagedorn, chief executive of Scotts, said in an earnings call with analysts. “The environment in this industry continues to evolve and the low level of regulation and bureaucracy allows companies that have a real entrepreneurial spirit – like (Scotts subsidiary) Hawthorne – to benefit from what’s happening.”

Scotts is in the midst of a planned $500 million investment in hydroponics – a sector that benefits heavily from cannabis growers of all sizes. Scotts has bought up several of the larger businesses that focus on aspects of hydroponics or organic gardening, such as nutrients, soils and lighting.

Now that even more states are legalizing marijuana with new recreational or medical laws, Hagedorn said Scotts is adjusting accordingly by putting a laser focus on investing more in its hydroponics subsidiary, the Hawthorne Gardening Co.; setting its sights on a couple of small, fill-in acquisitions this year; and making preparations to eventually evolve into a leading supplier for the larger grow operations. Scotts also is splitting off its organic gardening “craft” brands, such as Black Magic, EcoScraps and Whitney Farms, from Hawthorne into a separate arm of the company.

“It’s hard to remember the last time we had consistent double-digit growth in our core, and that’s exactly the opportunity we see in hydroponics,” he said during the call.

Hawthorne, the cannabis industry and the current political climate’s relationship to both got a fair chunk of the talk time during the earnings call, which in the past has been dominated by chatter about gross margins, the weather, brand performance and consumer trends.

During Scotts’ first quarter, typically not the company’s strongest, the company said acquisitions helped to drive a 27 percent sales increase from last year to $247 million. Scotts narrowed its net loss to $64.9 million, or $1.09 per share, from $81.3 million, or $1.32 per share.

“Clearly, a new industry has taken root, authorized by state laws that have been in place for some time now,” Hagedorn said, referencing projections for the creation of “tens of thousands” of jobs and a new tax revenue stream topping $1 billion. “That base is likely to grow as more states come online in the months and years ahead.”

Hagedorn said Scotts is staying put on its previous financial forecast that Hawthorne’s percentage sales growth would be in the high single-digits, despite the results of the 2016 state and federal elections. More states legalized marijuana, and President Donald Trump has not suggested he has wavered from his previous position on states’ rights, Hagedorn said.

“We’ve not adjusted that outlook since the November election, and we don’t intend to,” he said.

Concurrently in November, the Hawthorne executive team met with hydroponics industry members to get a gauge on the gaps that may exist in Scotts’ desire to be an industry leader, he said.

Additionally, Hagedorn said he specifically selected Colorado – the first state to have regulated sales of recreational marijuana – as the locale for a meeting this week with Scotts’ board of directors. He didn’t disclose specifics as to what would be discussed, but stated that a major opportunity for Hawthorne would be in the professional supplier vein.

“I would say we see growth — particularly in the medium- to large-size grows,” he said.