We Found A Bullish Easter Egg For The Cannabis Sector Hidden In Scotts Miracle-Gro’s Earnings

We Found A Bullish Easter Egg For The Cannabis Sector Hidden In Scotts Miracle-Gro’s Earnings

Earlier this week, The Scotts Miracle-Gro Company (NYSE: SMG) reported strong second quarter financial results and this is a trend that our readers need to be aware of. Through its Hawthorne subsidiary, the leading marketer of branded consumer lawn and garden products is levered to the cannabis industry through the development and sale of hydroponic growing products.

During the quarter, Hawthorne generated $230 million of revenue which represents a substantial increase when compared to the same period last year. For fiscal 2020, Scotts Miracle-Gro expects Hawthorne sales to increase by 30 to 35% and this is a trend that we are bullish on as it relates to the cannabis industry.

We believe that this represents a positive data point for the cannabis industry as it reflects an increase in the amount of production capacity. The last two years have been tough for the cannabis market and we believe that the sector is reaching an inflection point. Going forward, we expect to see cannabis companies report incremental sales growth as the global market continues to advance.

From North America to the European Union (EU), several countries have jumped on the cannabis legalization train and we are bullish on the current trend. Over the next year, we expect to see additional countries legalize cannabis and many eyes are on the United States (US). Although cannabis is not legal in the US, it is the largest cannabis market in the world and a change in legislation would prove to be a huge catalyst for the sector.

YTD Chart for SMG

Valuations have plummeted over the last two years and we are favorable on the growth that was reported by Scotts Miracle-Gro. In the back half of 2020, we expect to see substantial consolidation and expect there to be a number of beneficiaries of this. The global cannabis industry is in the early innings of a multi-decade growth cycle and this is a market that we continue to be excited about.

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Authored By

Anthony Varrell

Anthony Varrell is Managing Director of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Published at Fri, 08 May 2020 11:12:04 +0000