On this week’s Marijuana Market Update, I answer a viewer who asked about cannabis grow supply stocks.
A Viewer Question About Cannabis Grow Supply Stocks
Will emailed me at Feedback@MoneyandMarkets.com to ask:
Love the channel! Thanks for all the great info.
My question is: Who do you think comes out on top in the marijuana grow supply industry? I really like GrowGeneration, but I’m interested on your take.
Do you think Scotts or Hydrofarm has a better business model?
Or is there another player that I’m missing? Maybe a big box store like Home Depot decides to compete in this market too.
Thanks again for all the content.
I appreciate the question, Will.
We can look at the three companies you mention, and I’ll toss in another company with promising prospects.
As for a big box store, I don’t know that any will compete with cannabis grow suppliers, but maybe on a broad scale.
Unless federal legalization measures pass, I don’t see stores like Home Depot or Lowe’s getting too deep into to the cannabis market.
Let’s get started.
4 Cannabis Grow Supply Stocks
GrowGeneration (GRWG) Analysis
I want to look at sales projections for each company to spot potential trends.
First up, we have GrowGeneration Corp. (Nasdaq: GRWG)), a big name within cannabis grow supply stocks.
I like GrowGeneration as a cannabis play.
However, in its projected sales, the fact that it’s projected to reach a record of $515.2 million by 2024 doesn’t stand out.
Especially since sales are expected to drop this year and not return to 2021 levels until after 2023.
Inflation is going to play a small role.
People often consider cannabis recession-proof, as a recession allows growers to offload supply and keep prices level or even lower — which is good for the consumer.
But materials to grow cannabis can’t escape inflation and recession.
Growers are getting hit when they sell their products to dispensaries because cannabis prices remain level while materials costs rise.
This forces growers to shoulder those materials price increases.
That limits the amount of materials they can buy.
Scotts Miracle-Gro Co. (SMG) Analysis
Scotts Miracle-Gro Co. (NYSE: SMG) tells a similar story.
SMG is one of the largest players in the supply game because it is diversified beyond cannabis.
Sales topped $4.9 billion in 2021.
However, it’s expecting a 16% drop this year.
It won’t reach that record 2021 level until after 2024 — not near the same trajectory as GrowGeneration over the next three years.
Hydrofarm Holdings Group Inc. (HYFM) Analysis
Then, we have Hydrofarm Holdings Group Inc. (Nasdaq: HYFM).
What’s interesting about Pennsylvania-based Hydrofarm Holdings is that, unlike GrowGeneration and Scotts, it expects a slight uptick in sales.
One wrench for this cannabis grow supply stock is that the company’s president, Terence Fitch, stepped down.
This could create additional pressure depending on the direction of the company under new leadership.
Bonus Stock: Agrify Corp. (AGFY)
Now, let me throw a new player in the game: Agrify Corp. (Nasdaq: AGFY).
Massachusetts-based Agrify is much smaller than the previous three companies we reviewed.
However, what stands out is its estimated annual revenue trajectory.
In 2022, its revenue is expected to jump 133.1% from last year’s numbers!
And projections show that number could almost double again by 2024.
That’s impressive sales growth in a challenging economic environment.
Bottom Line for These Cannabis Grow Supply Stocks
So in terms of a market leader, Scotts is huge, but it’s not specific to cannabis.
GrowGeneration and Hydrofarm lean more into the cannabis market, but flat or reduced sales this year are a concern.
If estimates hold, Agrify could become an emerging player in the game, but it is smaller by comparison.
How These 4 Cannabis Grow Supply Stocks Have Performed
In terms of stocks, let’s compare the four:
Because of their stronger ties to cannabis, GRWG, HYFM and AGFY have all pushed much lower over the last 12 months than SMG.
Ultimately, any stock with a tie to the cannabis market is facing serious headwinds — even with a federal legalization bill up for debate in the U.S. Senate.
Analysts, myself included, see slim to no chance the bill will pass, so the bump we saw in cannabis stocks last week was temporary.
Bottom line: To wrap up Will’s question on cannabis grow supply stocks:
- SMG has the size and the diversification to be a stronger stock.
- I’m still a fan of GRWG because of its recent expansion.
- I also like the long-term prospects of AGFY — despite being a much smaller company than the other three.
That’s all for me this week.
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Research Analyst, Money & Markets