Scotts Miracle-Gro Beefs Up Cannabis Industry Exposure with $72.2 Million Acquisition of Can-Filters

Scotts Miracle-Gro (NYSE: SMG) continues to aggressively consolidate the fragmented hydroponics industry through its Hawthorne operating unit. Since 2015, it has acquired leading brands Agrolux, Botanicare, Gavita, General Hydroponics and Vermicrop to capitalize on cannabis legalization. On November 7th, the company announced financials for its 4th quarter ending September 30th and hosted a conference call, revealing its latest acquisition, a Canadian company with operations in Canada and the United States, Can-Filters. CEO Jim Hagedorn called the company, which exhibited its filters, fans and accessories at the recent jam-packed MJ BizCon in Las Vegas, “the top hydroponic brand in air movement and filtration systems.”

On November 28th, the company revealed the price tag for the first time in its 10-K filing with the SEC, spending $72.2mm.  With the acquisition, Scotts Miracle-Gro has now invested $565mm since March 2015 to assemble its portfolio, not including its acquisition of the majority of AeroGarden. According to the filing, Hawthorne produced sales of $287.2mm in FY17, up 137%, with organic growth of about 23% and acquisitions fueling 112% growth. Sales from Hawthorne, which produced operating profits of $35.5mm, represented 11% of the overall corporate sales.

The company just began reporting Hawthorne as its own segment, which could begin speculation about the timing of a possible spinoff. On the conference call, CEO Hagedorn stated that the company is “close to the end of the M&A process”, though he expects to fill in gaps, spending $50-100mm per year to do so. As far as the outlook, CFO Randy Coleman implied the company should see FY 18 sales rise about 15%, saying the company expects that “Hawthorne will continue to see double-digit volume growth and expect it to add a little more than 1 point to the company-wide sales growth calculation.”

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Exclusive article by Alan Brochstein, CFA

ab-byline-ncvBased in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV.

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