Top Ancillary Cannabis Stocks for 2024
Investing in ancillary cannabis stocks, a market growing alongside the US cannabis sector is becoming increasingly important as 2024 draws near. Recent statistics show impressive growth in this sector. In 2023, the US cannabis industry’s revenue soared, significantly outperforming previous years. This surge has provided a robust foundation for ancillary companies. These firms, crucial in supporting core cannabis operations, offer diverse services. They range from cultivation supplies to marketing and legal support.
This market’s growth has opened avenues for both core trading and long-term investing in ancillary cannabis stocks. Core traders focus on short-term movements, leveraging industry volatility for profit. In contrast, long-term investors are attracted to the industry’s sustained growth potential. They look for stocks with strong fundamentals, betting on the industry’s upward trajectory. Both strategies reflect the dynamic and promising nature of ancillary cannabis investments as we head into 2024.
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Sector Spotlight: 2024’s Top Ancillary Cannabis Stocks for Investment
- GrowGeneration Corp. (NASDAQ: GRWG)
- The Scotts Miracle-Gro Company (NASDAQ: SMG)
- Hydrofarm Holdings Group, Inc. (NASDAQ: HYFM)
GrowGeneration Corp.
GrowGeneration Corp. stands as a pivotal player in the ancillary cannabis market. Founded in 2008, it specializes in hydroponic and organic gardening supplies. Catering primarily to cannabis growers, it offers a wide range of products. These include lighting, nutrients, and soil, essential for cannabis cultivation. As of 2023, GrowGeneration boasts over 60 stores across the United States. Their largest presence is in states with significant cannabis industries. This includes California, Colorado, and Michigan.
The company’s rapid expansion reflects the growing demand in the cannabis sector. GrowGeneration’s strategy focuses on both in-store and online sales. This approach ensures a wide reach to various customer segments. Their stores are not just retail points but also offer expert advice and support. This model has helped GrowGeneration become a trusted name among cannabis cultivators. The company’s growth trajectory aligns closely with the booming US cannabis industry. Their success story mirrors the sector’s overall expansion and investor interest.
Third Quarter 2023 Highlights
The third quarter 2023 press release offers a mixed picture of the company’s financial performance. $55.7 million was the company’s reported net sales amount. This data indicates a 13% drop from the prior quarter. Comparable store sales decreased by 14.4% from the previous year’s level. The company’s gross profit margin increased in spite of these drops. To reach 29.1%, it rose by 320 basis points. Comparing this rise to the prior year shows more effective cost control.
However, the corporation still had a net loss. There was a $7.3 million net loss. This represents a marginal increase over the $7.2 million net loss recorded the year before. A measure of profitability called Adjusted EBITDA showed a $0.9 million loss for the organization. Even though it is a loss, this is a $1.8 million increase over 2022. This improvement shows that the business is doing a better job of controlling its expenses.
From a cash flow perspective, the company appears to be in a relatively stable position. It reported that year-to-date, operations had generated $2.8 million in cash flow. This is a positive sign, indicating that the business is generating cash through its operations. Additionally, the company’s financial stability is evident in its reserves. It reported having $66.6 million in cash, cash equivalents, and marketable securities. This amount provides a cushion for the company to navigate through challenging market conditions.
Looking ahead, the company is maintaining its full-year guidance for 2023. It expects revenue to be between $220 million and $225 million. In terms of Adjusted EBITDA, the company anticipates a loss of $4 million to $6 million. This guidance suggests that the company anticipates continuing challenges but also indicates a degree of confidence in its ability to manage these challenges effectively.
GRWG Stock Performance
GRWG stock closed at $2.58 on December 28th, down 3.37% in the last month of trading. In addition, GRWG stock has a 52-week range of $1.77-$5.89 and is down 34.18% year to date.
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The Scotts Miracle-Gro Company
The Scotts Miracle-Gro Company, a renowned name in the lawn and garden industry, has expanded its reach into the cannabis sector. Established in 1868, this company is a leader in the production of gardening and lawn care products. In recent years, Scotts Miracle-Gro has strategically ventured into the cannabis market. They provide specialized products like fertilizers and growing mediums for cannabis cultivators. While Scotts Miracle-Gro doesn’t operate retail stores like traditional cannabis companies, their products are widely available. They are found in various gardening and home improvement outlets across the United States.
Scotts Miracle-Gro’s subsidiary, Hawthorne Gardening Company, specifically targets the cannabis and indoor gardening markets. Hawthorne offers a range of hydroponic equipment, lighting, and nutrients essential for cannabis cultivation. This move positions Scotts Miracle-Gro as a key player in the ancillary cannabis industry. Their expertise in gardening products has seamlessly translated into success in the cannabis domain. The company’s involvement in the cannabis industry demonstrates its adaptability and foresight in tapping into emerging markets. This strategic diversification has garnered significant interest from investors and industry observers.
Highlights for Fiscal 2023 Full-Year
The Scotts Miracle-Gro Company’s fiscal year 2023 and fourth quarter results showcased a mixed financial performance. The company achieved its target, recording $3.55 billion in net revenues for the year. A notable improvement was seen in its free cash flow, reaching $438 million. This was a significant increase of $681 million from the previous year. Despite challenges, the company remains optimistic about generating $1 billion in free cash flow by Fiscal 2024. However, the full-year results were mixed. The non-GAAP adjusted EBITDA was $447 million, thanks to cost savings from Project Springboard. But, the company also reported a $6.79 GAAP loss per share for the year. The non-GAAP adjusted EPS stood at $1.21. The fiscal year witnessed a 10% decrease in sales.
CEO and Chairman Jim Hagedorn commented on the company’s stabilization and progress in several areas. These areas include debt reduction, cost savings, and generating free cash flow. The company aims to grow its consumer business, improve margins, and enhance Hawthorne solutions. For Fiscal 2024, the focus is on strong retailer engagement, cost reduction, creating free cash flow, and reducing debt. The company has also revamped its senior leadership and executive teams. This restructuring is expected to drive the company’s goals forward in the coming year.
Fourth Quarter of 2023
The fourth quarter of 2023 saw total revenues fall to $374.5 million, a 24% decrease. In the U.S. consumer market, sales dropped by 33%, and Hawthorne sector sales decreased by 11%. Both GAAP and non-GAAP adjusted gross margin rates were impacted negatively due to unfavorable fixed cost leverage and reduced net pricing. Project Springboard’s distribution savings partially offset these declines. The quarter resulted in a GAAP net loss of $468.4 million, or $8.33 per share. The non-GAAP adjusted loss was $155.4 million, or $2.77 per share.
Over the full fiscal year, U.S. Consumer segment sales declined by 3%, and Hawthorne segment sales fell by 35%. The GAAP gross margin rate for the year was 18.5%, with a non-GAAP adjusted rate of 23.7%. SG&A expenses decreased by 10% from 2022, reflecting the cost savings from Project Springboard. Executive VP and CFO Matt Garth highlighted the team’s focus on improving operations and efficiency. The company closed the year ahead of its latest guidance and is now concentrating on fiscal 2024, prioritizing margin recovery, strong free cash flow generation, and enhanced financial flexibility.
SMG Stock Performance
SMG stock closed at $65.08 on December 28th, up 15.35% in the past month. Currently, the stock has a 52-week price range of $43.67-$88.61 and is up 33.94% year to date.
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Hydrofarm Holdings Group, Inc.
Hydrofarm Holdings Group, Inc. is a key player in the ancillary cannabis industry, specializing in hydroponics equipment and supplies. Founded in 1977, the company has established itself as a trusted provider for both commercial and amateur growers. They focus on products that enhance plant growth, particularly for cannabis cultivation. These products include high-intensity grow lights, climate control solutions, and hydroponics systems. Hydrofarm does not operate traditional retail stores. Instead, their products are distributed through a vast network of specialty retailers and large online platforms.
Hydrofarm’s presence is notable in states with a significant cannabis cultivation sector, like California, Colorado, and Oregon. Their expertise in hydroponics makes them a go-to resource for cannabis growers in these regions. The company’s strategy has been to focus on innovation and quality. This approach has cemented their reputation in the cannabis cultivation community. With the growth of the cannabis industry, Hydrofarm’s products have become increasingly popular. Their role in the cannabis supply chain is crucial, reflecting the growing demand for specialized cultivation equipment.
Third Quarter 2023 Highlights
The company recorded lower net sales in the third quarter of 2023, down from $74.2 million to $54.2 million in the same period the previous year. Additionally, the gross profit decreased, going from $5.9 million to $3.3 million. The gross profit margin decreased from 7.9% of net sales to 6.1% as a result of the decline in gross profit.
The adjusted gross profit did, however, grow, going from $7.8 million to $12.5 million. Improvements were also made to the adjusted gross profit margin, which went from 10.5% to 23.0% of net sales. Despite these gains, the company experienced a net loss of $19.9 million, although this was an improvement from the net loss of $23.5 million reported in the same period last year.
The adjusted EBITDA increased from a negative $9.0 million to $0.5 million, indicating positive movement. This enhancement points to increased operational effectiveness. Accounts receivable reserves and inventory costs had an effect on the quarter’s earnings. In spite of these obstacles, the business was able to produce $7.7 million in cash from operations and $6.9 million in free cash flow.
The business started the second stage of its reorganization strategy in order to increase efficiency and reduce costs even more. Consolidation of US industrial plants is a part of this phase. Increasing cost savings and streamlining processes are the two main objectives of this restructuring. This action demonstrates the company’s continued efforts to enhance financial performance and streamline operations.
HYFM Stock Performance
HYFM stock closed at $0.8990 on December 28th up 2.04% in the last month of trading. At present HYFM stock has a 52-week price range of $0.6720-$2.27 down 42 % year to date.
Ancillary Stocks Poised for Success in December 2023
As 2024 approaches, ancillary cannabis stocks represent a tantalizing opportunity for investors. Companies like GrowGeneration, Scotts Miracle-Gro, and Hydrofarm have shown robust growth alongside the expanding cannabis market. Their diverse services and products make them integral to the cannabis industry’s ecosystem. This positions them well for sustained growth. However, as with any investment, potential risks must be considered. This is particularly true in a market as dynamic as cannabis.
Investors should employ proper risk management strategies before entering positions in these stocks. This involves setting clear investment goals and understanding one’s risk tolerance. Using technical analysis can also provide valuable insights. It helps in identifying trends and making informed decisions. Diversification across various stocks and sectors is another key strategy. It can mitigate risks inherent in a volatile market. With these considerations in mind, ancillary cannabis stocks could be a compelling addition to investment portfolios in 2024. Their growth potential, coupled with prudent investment strategies, makes them worth watching.
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