GrowGeneration Corp’s Potential Cannot Be Overstated
GrowGeneration Corp (OTCMKTS:GRWG), is not all that well known in the cannabis sector, but after reporting first-quarter financial results that the company called “transformational,” that could change very quickly.
As one of the largest chains of specialty hydroponic and organic garden centers in the United States, GrowGeneration has a strong national footprint and an aggressive acquisition strategy, targeting over $25.0 million in new acquisitions in 2019. The company is also working on graduating to a bigger stock exchange.
GrowGeneration stock is trading around $3.10 as of this writing and has advanced 40% year-to-date.
While that is indeed impressive, it is nothing compared to what GRWG stock could do in the rest of 2019. It’s quite plausible that GrowGeneration’s share price could double or triple from its current level before the end of the year.
GrowGeneration may not be the kind of cannabis penny stock you can retire on (yet), but it’s certainly burning bright and deserves a look.
GrowGeneration Corp Overview
In a gold rush, you can dig for gold or sell shovels.
With that in mind, Denver-based GrowGeneration owns and operates specialty retail hydroponic and organic gardening stores that sell thousands of products used by commercial and home growers. (Source: “Investor Presentation May 2019,” GrowGeneration Corp, last accessed May 9, 2019.)
The company currently operates 21 locations in eight states, covering all regions of the U.S., including California (six stores), Colorado (five), Washington (one), Nevada (two), Michigan (three), Rhode Island (one), Oklahoma (two), and Maine (one).
It has near-term targeted expansion plans for Oregon, Arizona, Missouri, Florida, Ohio, Pennsylvania, New York, Maryland, Connecticut, Massachusetts, Vermont, and New Hampshire.
As the largest business-to-business (B2B) seller of specialty hydroponic supplies, GrowGeneration carries and sells a huge array of products. At last count, the company had over 10,000 stock keeping units (SKUs).
Its products include organic nutrients and soils; advanced lighting technology; hydroponic and aquaponic equipment; greenhouses; tents; environment controllers; and cloning machines.
GrowGeneration Corp Stock
|GRWG Stock Information|
|Market Cap||$87.4 million|
|Shares Outstanding||28.8 million|
|50-Day Moving Average||$2.94|
|200-Day Moving Average||$3.00|
(Source: “GrowGeneration Corp. (GRWG),” Yahoo! Finance, last accessed May 9, 2019.)
Over the last year, GRWG stock bounced all over the place, which sent many risk-averse investors running for shelter.
Like the broader market, GrowGeneration stock tumbled during the fourth-quarter sell-off. Then, also like the broader market, it rebounded sharply in January. Thanks to a number of announced acquisitions, the company’s share price trended higher in the early part of February.
After struggling to find its legs, the stock soared roughly 20% on May 7, after GrowGeneration Corp reported strong first-quarter financial results and increased its full-year guidance.
Chart courtesy of StockCharts.com
GrowGeneration Announced 4 Recent Acquisitions
The retail hydroponic industry is highly fragmented and extremely lucrative. If GrowGeneration wants to own and operate branded stores in every major legalized-cannabis state in the U.S. and throughout Canada, it needs to have an aggressive acquisition strategy.
As of January, GrowGeneration had $14.0 million in cash for acquisitions. As of this writing, it had $6.6 million in cash. It’s not difficult to see where some of its cash went over the last few months. (Source: “First Quarter 2019 Earnings Conference Call,” GrowGeneration Corp, May 7, 2019.)
On January 22, GrowGeneration announced that it had purchased all the assets of Chlorophyll, Inc. Also located in Denver, the Chlorophyll superstore has over 20,000 square feet of warehouse and retail space, making it the largest hydroponic store in that city.
This transaction adds $8.0 million in revenue to GrowGeneration’s bottom line. It will also be the sixth store in the company’s portfolio of stores in Colorado. (Source: “GrowGeneration Purchases All the Assets of Chlorophyll, Inc.,” Cision, January 22, 2019.)
In February, GrowGeneration said it purchased certain assets of BWGS, LLC. The transaction includes all of the inventory of BWGS, as well as all of its branded products. The deal bolsters GrowGeneration’s ability to supply private-label house-brand products to its customers. (Source: “GrowGeneration Purchases Assets of BWGS, LLC.,” Cision, February 4, 2019.)
The company also acquired the assets of Palm Springs Hydroponics. In operation for over 18 years, Palm Springs Hydroponics will be GrowGeneration’s its 22nd location overall and its seventh store in California. The company’s sales in the California desert region now add up to more than $5.0 million. (Source: “GrowGeneration Acquires The Assets Of Palm Springs Hydroponics,” Cision, February 7, 2019.)
On February 11, GrowGeneration announced that it had acquired the assets of Reno Hydroponics. As an established leader in its market, Reno Hydroponics has been operating for over 10 years. The Reno store will be GrowGeneration’s 23rd location overall and its second in Nevada. (Source: “GrowGeneration Acquires The Assets Of Reno Hydroponics,” Cision, February 11, 2019.)
GrowGeneration Reports Another Record Quarter
GrowGeneration has a history of reporting record revenue growth. The first quarter of 2019, though, was, in the company’s own words, transformational.
First-quarter revenue was $13.1 million, a 199% increase over the $4.4 million recorded in the same prior-year period. Same-store sales were up 42%, compared to those in the first quarter of 2018. (Source: GrowGeneration Corp, op cit.)
During the quarter, GrowGeneration acquired stores in Denver, Colorado; Palm Springs, California; and Reno, Nevada. It also opened locations in Tulsa, Oklahoma and Brewer, Maine.
Net income was $229,000, compared to a net loss of $953,000 in the first quarter of 2018. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $615,000, compared to an adjusted EBITDA loss of $366,000 in the first quarter of 2018.
Store operating costs, as a percentage of revenue, declined 26% from 20.4% in the first quarter of 2018 to 15% in the first quarter of 2019.
Corporate overhead declined 107% from 21.8% of revenue in the first quarter of 2018 to 10.5% of revenue in the first quarter of 2019.
As of March 31, 2019, GrowGeneration had $6.6 million in cash and cash equivalents. It also had working capital of $17.4 million, compared to $21.6 million as of December 31, 2018.
Co-Founder and CEO Darren Lampert said:
The company’s first quarter financial results were transformational. We improved the financial performance of the company in all areas. With Q2 being our traditional strongest quarter, revenue and net income are trending significantly higher than our Q1 numbers.
Looking forward, GrowGeneration increased its guidance for 2019 revenue to $60.0–$65.0 million. At the midpoint, that represents a 115% increase over the $29.0 million recorded in 2018. The company also increased its full-year 2019 guidance for adjusted EBITDA to $0.14–$0.18 per share.
In April, GrowGeneration forecast full-year revenue of $52.0–$58.0 million and full-year adjusted EBITDA of $0.12–$0.16 per share.
GrowGeneration Corp appears to be doing everything right. Already the largest B2B seller of specialty hydroponic supplies, the company is making good on its desire to own and operate branded stores in Canada and in every major U.S. state that has legalized cannabis.
The company continues to enter markets where the laws are conducive to cultivating marijuana and there is a high concentration of growers.
Judging by its recent financial numbers, GrowGeneration’s plan has been working. Its first-quarter revenue was up almost 200% year-over-year and up roughly 50% sequentially. The company expects its revenue to keep climbing.
Again, not a lot of people are talking about the untapped potential of GrowGeneration, but with the company working at listing on a big stock exchange, that shall pass.