GrowGeneration Corp: Cannabis Play More Bullish on Acquisition & Expansion

GrowGeneration Corp Cannabis Play More Bullish on Acquisition & Expansion
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GrowGeneration Corp Up 128% in 2019 & Poised to Soar Higher

GrowGeneration Corp (OTCMKTS:GRWG) is one of the cannabis industry’s best-kept secrets. Owner of the largest chain of specialty hydroponic and organic gardening centers in the U.S., GrowGeneration has been bullish all year, shrugging off the headwinds hammering much of the pot stock market.

On September 3, GRWG stock hit a 52-week high of $5.75, for a year-to-date gain of approximately 160%. The company’s share price has given up some short-term ground to profit-taking but is still up 128% since the start of the year.

There are a lot of legitimate reasons why GrowGeneration stock has been trumping the industry: record financial results, acquisitions, and an expanding business footprint. The latter two items should help GrowGeneration Corp continue to report the former.

GRWG Stock Overview

GrowGeneration Corp is where big multi-state commercial operators go to make sure the cannabis they brag about grows properly.

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The Denver-based company owns and operates specialty retail hydroponic and organic gardening stores in 25 locations in nine states (California, Colorado, Maine, Michigan, Nevada, New Hampshire, Oklahoma, Rhode Island, Washington). (Source: “About,” GrowGeneration Corp, last accessed September 20, 2019.)

It also operates an online superstore.

Through GrowGeneration Canada, the company is looking to operate in every major center in the Great White North.

The company sells thousands of products, everything one needs to grow cannabis, including soils, organic nutrients, advanced lighting, and state-of-the-art hydroponic equipment that is used by commercial and home growers for indoor and outdoor operations.

On top of that, GrowGeneration sells ventilation systems, propagation supplies, and pest controls. It also helps growers design their greenhouses and better harvest their crops.

GRWG Stock Information

Market Cap $177.0 Million
52-Week High $5.75
52-Week Low $2.05
Shares Outstanding 35.5 Million
Float 27.09 Million
50-Day Moving Average $5.00
200-Day Moving Average $3.66

(Source: “GrowGeneration Corp. (GRWG),” Yahoo! Finance, last accessed September 10, 2019.)

GrowGeneration stock has experienced some volatility in 2019, but since late June, it has been on the rise. The sharp increase in the price of GRWG stock can be attributed to the company’s record financial results, a $12.8-million private placement, acquisitions, and its expanding business footprint.

GrowGeneration also recently appointed Bob Nardelli, a former CEO of Home Depot (NYSE:HD), as its senior strategic advisor.


Chart courtesy of StockCharts.com

3rd & 4th Leases in Oklahoma

Oklahoma has been a strong market for GrowGeneration, thanks to its increasing medical marijuana base and favorable cultivation laws.

On September 10, GrowGeneration announced that it will be expanding its retail operations, having signed its third and fourth leases in Oklahoma.

The company signed leases to open 40,000-square-foot and 20,000-square-foot sales and distribution warehouses, in Oklahoma City and Tulsa.  (Source: “GrowGeneration Signs 3rd and 4th Leases in Oklahoma,” Cision PR Newswire, September 10, 2019.)

Both of them should be open for business by November. These will be the company’s 24th and 25th locations.

GrowGeneration Corp Purchases Assets of Grand Rapids Hydroponics

On September 3, GrowGeneration said it acquired all of the assets of Grand Rapids Hydroponics. With the acquisition, GrowGeneration gains one location in Grand Rapids, Michigan, taking its total in that state to four retail and warehouse locations. (Source: “GrowGeneration Purchases All the Assets of Grand Rapids Hydroponics,” Cision PR Newswire, September 3, 2019.)

The Grand Rapids location is one of the largest and highest-volume hydroponic garden centers in the United States. And there are a lot of growers in Michigan to keep the location growing.

Approximately 277,000 patients are registered with the state to grow their own pot or get it from any of the 43,000 registered caregivers who can legally supply it. When it comes to patient count, Michigan trails only California.

Another Quarter of Record Results

In early August, GrowGeneration Corp announced another quarter of record results. Darren Lampert, co-founder and CEO of GrowGeneration, said the company’s financial performance improved in all areas.

Revenue for the second quarter ended June 30  soared 172% year-over-year to a record $19.5 million. (Source: “GrowGeneration Reports Record Q2 2019 Revenues and Net Income,” GrowGeneration Corp, August 8, 2019.)

Same-store sales advanced 23% while store operating costs as a percentage of revenue declined to 14% from 16.1% in the same period last year.

GrowGeneration swung to profitability in the second quarter, with net income of almost $1.1 million, compared to a net loss of $929,959 in the second quarter of 2018. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was almost $1.8 million, compared to an adjusted EBITDA loss of $205,758 in the same quarter of 2018.

The company ended the quarter with cash and cash equivalents of $17.9 million. Its liquidity was boosted by the $12.8-million financing that was completed in June, funded in part by hedge funds Gotham Green Partners and Navy Capital, LLC.

Analyst Take

GrowGeneration Corp continues to be one of the best-underappreciated stocks in the cannabis industry.

GrowGeneration stock is up roughly 130% year-to-date, fueled by back-to-back record financial results and an aggressive acquisition strategy that recently saw it add its seventh acquisition this year.

Moreover, the company has been investing in an aggressive new store-opening plan, working with a national real estate company to find properties in every major city in the United States.

GrowGeneration has a strong cash position and the blessing of New York City hedge funds.

All of which is probably why GrowGeneration raised its full-year revenue guidance to the $65.0–$70.0 million range. At the midpoint, that represents year-over-year growth of 132%.

Even that aggressive number is expected to rise. Since providing that guidance, GrowGeneration acquired Grand Rapids Hydroponics and signed the leases for two new locations.