Top Ancillary Cannabis Stocks Pre-February 2024
The ancillary cannabis stocks are a key area to watch, especially as we approach February 2024. This sector includes companies not directly involved in cannabis cultivation or sales, but supporting these core activities. Notably, the cultivation and hydroponic side of cannabis is gaining traction. These companies provide vital equipment, technologies, and services for efficient cannabis growth. This is crucial in a market where quality and yield can directly influence success. The hydroponic industry, in particular, is thriving due to its efficiency and sustainability in cannabis production. These advancements are vital for the cannabis industry, which continues to grow amidst evolving regulations and increasing acceptance.
In the United States, the cannabis industry’s future looks promising. With more states legalizing cannabis in some form, the market is expanding rapidly. This growth isn’t just in direct cannabis sales but also in the ancillary market, which supports the industry’s backbone. Investors are increasingly using technical analysis to identify potential growth stocks in this sector. Technical analysis involves studying market data and price movements to predict future trends. However, proper risk management is crucial. The cannabis market, particularly in the U.S., faces regulatory uncertainties and market volatility. Investors should balance potential rewards with these inherent risks. This balance is vital for making informed investment decisions in the dynamic cannabis industry.
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Ancillary Cannabis Stocks to Watch Before February 2024
- GrowGeneration Corp. (NASDAQ: GRWG)
- The Scotts Miracle-Gro Company (NASDAQ: SMG)
- Hydrofarm Holdings Group, Inc. (NASDAQ: HYFM)
GrowGeneration Corp.
GrowGeneration Corp. holds a significant position in the cannabis ancillary market. It functions as a chain of retail hydroponic and organic garden stores. Their main goal is to sell a range of things related to gardening. These products include anything from cutting-edge hydroponic equipment to organic ingredients. GrowGeneration’s business approach is unusual in that it caters to both home and commercial growers.
GrowGeneration will have a substantial national footprint by 2024. They run more than sixty stores in important states. These states, which have thriving cannabis industries, include Michigan, Colorado, and California. Their extensive network gives them a competitive edge in the expanding cannabis industry. GrowGeneration’s strategic growth is supported by its presence in significant cannabis-friendly states.
Third Quarter 2023 Highlights
The press release for the third quarter of 2023 presents a mixed financial performance. The company declared net sales of $55.7 million. This statistic shows a decrease of 13% over the previous quarter. Comparable store sales dropped 14.4% from the level of the prior year. This decline was offset by an improvement in the company’s gross profit margin. It increased by 320 basis points to 29.1%. When comparing this increase to the previous year, cost control was more successful.
Despite this, the company experienced a net loss. The net loss was $7.3 million. Comparing this to the $7.2 million net loss reported the previous year, there has been a slight increase. The company lost $0.9 million according to Adjusted EBITDA, a measure of profitability. Despite the deficit, this is a gain of $1.8 million over 2022. This enhancement demonstrates that the company is improving its cost management.
The corporation seems to be in a relatively consistent position in terms of cash flow. It said that so far this year, operating cash flow has reached $2.8 million. This is promising because it demonstrates that the business is turning a profit. Additionally, the corporation’s reserves amply illustrate its strong financial position. It reported $66.6 million in marketable securities and cash equivalents. This amount serves as a buffer to assist the company in navigating challenging market conditions.
In terms of the future, the company is staying true to its 2023 full-year estimate. It expects to generate revenues of $220 million to $225 million. The company anticipates losing $4 to $6 million in Adjusted EBITDA. This advice expresses the company’s expectation of continuing challenges along with a degree of confidence in its ability to manage them effectively.
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The Scotts Miracle-Gro Company
In the lawn and garden sector, the Scotts Miracle-Gro Company is a household name. It was established in 1868 and has a lengthy past. The business specializes in a wide range of lawn care and gardening supplies. These consist of soils, plant feeds, fertilizers, and pest control agents. They are a versatile player since their products serve both the residential and commercial industries.
Scotts Miracle-Gro does not run conventional retail establishments. Rather, their merchandise is extensively accessible via a range of merchants. They are widely available at large gardening and home improvement stores throughout the United States. They can connect with a large number of customers thanks to this distribution approach. States with a lot of gardeners tend to carry their items. Texas, Florida, and California are included in this. Their extensive availability highlights their superiority in the market.
Highlights for Fiscal 2023 Full-Year
The Scotts Miracle-Gro Company released its fourth-quarter and fiscal year 2023 results, displaying a variety of outcomes. The business met its expectations, reaching $3.55 billion in net revenues for the entire year. Its free cash flow increased to $438 million from $681 million in the prior year, a considerable improvement. The company continues to project that it will produce $1 billion in free cash flow by the end of Fiscal 2024, or in two years.
Project Springboard cost reductions produced non-GAAP adjusted EBITDA of $447 million for the whole year. However, the company’s GAAP loss per share for the whole year was $6.79. $1.21 was the non-GAAP adjusted EPS. The sales for the fiscal year 2023 dropped by 10%. The GAAP loss per share was $6.79. The diluted share’s non-GAAP adjusted earnings came to $1.21. The financial outlook for fiscal 2024 includes the progress made on margin recovery, accounting for a higher share count, effective tax rate, and average cost of borrowing in comparison to fiscal 2023.
Chairman and CEO Jim Hagedorn shared his views on the business’s stabilization and the advancements made in several areas. These include lowering debt, cutting expenses, and generating free cash flow. The company wants to grow its customer base, get its profitability back, and offer solutions to Hawthorne. The major goals of an operating plan for the fiscal year 2024 are debt paydown, cost reduction, strong retailer involvement, and free cash flow creation. The organization’s executive teams and senior executives have also received updates.
Q4 2024 Hawthorne Highlights
In the fourth quarter of 2023, overall business revenues decreased by 24% to $374.5 million. The US consumer market had a 33% decline in sales. The Hawthorne sector saw an 11% decline in sales. The negative GAAP and non-GAAP adjusted gross margin rates were caused by negative fixed cost leverage and decreased net price. The distribution savings from Project Springboard, however, substantially mitigated these adverse effects.
Compared to a loss of $220.1 million during the same time previous year, the GAAP net loss for the fourth quarter was $468.4 million, or $8.33 per share. There was a $2.77 per share, or $155.4 million, non-GAAP adjusted loss. Sales in the U.S. Consumer division declined by 3% during the fiscal year, while sales in the Hawthorne segment fell by 35%. The non-GAAP adjusted gross margin rate was 23.7 percent for the full year, compared to 18.5 percent under GAAP. Project Springboard’s cost savings caused SG&A to decrease by 10% from 2022.
Executive Vice President and CFO Matt Garth emphasized the group’s efforts to boost productivity and efficiency. The company is now concentrating on fiscal 2024, stressing high free cash flow generation, enhanced financial flexibility, and margin recovery. The company ended the year ahead of its most recent guidance.
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Hydrofarm Holdings Group, Inc.
One of the major companies in the hydroponics and controlled environment agriculture (CEA) sectors is Hydrofarm Holdings Group, Inc. It was established more than 40 years ago and specializes in premium hydroponic supplies and equipment. Growers who concentrate on indoor and greenhouse cultivation are served by their products. They supply the growing media, lights, and fertilizers needed for hydroponic farming.
Hydrofarm does not run any retail establishments. Rather, it disseminates merchandise via an internet network of shops. States with thriving indoor and hydroponic farming ecosystems are likely to have a high concentration of them. Colorado, Oregon, and California are included in this. The distribution strategy used by Hydrofarm guarantees widespread product accessibility. They are in a strong position in the growing hydroponics sector because of this technique. They are a well-known brand in the industry because of their emphasis on quality and innovation.
Third Quarter 2023 Highlights
In comparison to the same period in the previous year, the company’s net revenues decreased in the third quarter of 2023, from $74.2 million to $54.2 million. In addition, the gross profit dropped to $3.3 million from $5.9 million. The drop in gross profit caused the gross profit margin to drop from 7.9% of net sales to 6.1%.
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 improvements, the company’s net loss for the same period last year was $19.9 million, which was better than the $23.5 million net loss that was recorded.
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 affected the quarter’s earnings. Despite these obstacles, the business was able to produce $7.7 million in cash from operations and $6.9 million in free cash flow.
To further enhance efficiency and cost savings, the company initiated a second phase of its restructuring plan. This phase includes the consolidation of U.S. manufacturing facilities. The goal of this restructuring is to streamline operations and generate additional cost savings. This move indicates the company’s ongoing efforts to optimize its operations and improve financial performance.
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