Scotts Miracle-Gro’s pivot to cannabis

10% of Scotts Miracle-Gro profits now come from supplies used to grow cannabis. Image: Shutterstock/Checubus

In 2013, Jim Hagedorn, CEO of gardening supply behemoth Scotts Miracle-Gro [SMG], decided to pivot the company. The story goes that he visited a bustling regional garden centre filled with row after row of hydroponic equipment aimed at home cannabis cultivators (growing in water is the go-to way of producing cannabis), but no Miracle-Gro anywhere to be seen. Moments earlier he had been in a Home Depot that was fully stocked with Scotts products, but had no customers.

“I told everyone we’re doing it,” Hagedorn said in 2016. “You know it’s a multi-billion-dollar business and we’ve got no growth in our core.” 


Cannabis related sales made by Scotts Miracle-Gro in 2017

In a bid to make Scotts a year-round business and sell higher margin products, Hagedorn set up subsidiary Hawthorne Gardening Company to oversee the push into cannabis, naming his son CEO. Now consistently tipped as a marijuana stock (though not included in the North America Marijuana Index – yet) it has bought or launched 10 companies that serve both the cannabis industry and home growers. 

By 2017, Hawthorne constituted more than 10% of Scotts sales at $287m, up from $121m in 2016 and $48m in 2015 – a 153% gain in 2016 and another 137% in 2017.

It hasn’t all been gains, though. In January, the stock abruptly plummeted 16%, following a larger than expected loss across the business in the previous quarter. There was also a feeling that Hawthorne’s growth had started to plateau: sales were up 20% in the subsidiary, but this was entirely due to the boost provided by acquisitions. 

“We are creating a game-changing moment for Scotts Miracle-Gro, for Hawthorne, the hydroponic products industry and the users of our products.” | Jim Hagedorn

The stock has since lost a further 15%, but has been on the up in recent days and sales growth is however likely to come in 2019. Hawthorne recently completed the purchase of Sunlight Supply, the largest hydroponics distributor in the US, which could see sales reach $600m (up from $290m in 2017). “We are creating a game-changing moment for Scotts Miracle-Gro, for Hawthorne, the hydroponic products industry and the users of our products,” Hagedorn said in the statement.

The continued push has prompted investment bank SunTrust Robinson Humphrey to upgrade its price target for Scotts Miracle-Gro from $80 to $100, telling investors: “As this business faces easier comparisons in Q1 2019 and returns to growth, we expect investors to jump back on this vehicle for riding the legalisation wave.” 

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