The Best Ancillary Cannabis Stocks for Your Portfolio
Welcome to this field of ancillary cannabis companies, where we will investigate the growing market of hydroponic equipment and agricultural items geared at the ever-expanding cannabis sector. In Q3 2023, cannabis producers are witnessing extraordinary growth and demand for their goods, owing mostly to ongoing legalization initiatives in several locations. As more nations and states legalize cannabis for medicinal and recreational purposes, cannabis producers strive to improve their production procedures and productivity. In this setting, ancillary companies that offer cutting-edge hydroponic systems, growing tools, and agricultural solutions are critical in enabling cannabis growers to scale their operations efficiently and sustainably.
As the cannabis sector continues to thrive in the third quarter of 2023, investors are closely monitoring the top ancillary stocks at the forefront of this expanding market. In general, these companies are redefining cannabis farming by providing cutting-edge technologies that increase efficiency, optimize resource consumption, and ensure consistent, high-quality outputs. As the demand for cannabis products diversifies and intensifies, dependable hydroponic equipment and agricultural solutions become critical for cannabis producers looking for a competitive advantage. In this initial examination, we will reveal the essential companies and creative solutions fueling this sector’s growth and investigate how they influence the cannabis market landscape in the third quarter of 2023.
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Ancillary Cannabis Stocks: Top Contenders for Q3 2023 Investment Opportunities
- GrowGeneration Corp. (NASDAQ: GRWG)
- The Scotts Miracle-Gro Company (NYSE: SMG)
- Hydrofarm Holdings Group, Inc. (NASDAQ: HYFM)
GrowGeneration Corp.
GrowGen is a specialty retail hydroponic and organic growing center owner and operator. The company now has 61 locations in 17 states. GrowGen also has an online cultivator superstore at growgeneration.com. GrowGen provides and distributes thousands of goods, including organic nutrients and soils, cutting-edge lighting technology, and cutting-edge hydroponic equipment for commercial and home growers to utilize indoors and outdoors.
Revenue fell $24.9 million, or 30.5%, to $56.8 million in the fiscal quarter ending March 31, 2023, compared to $81.8 million the previous quarter. The fall in net revenue was principally due to a 36.6% decrease in same-store sales at 55 retail locations and the Company’s e-commerce operations compared to the same period last year, offset partially by an increase in revenue from our distribution and other segment. Overall retail sales were $39.4 million in the first quarter, down from $64.3 million the previous year. The revenue forecast for 2023 remains between $250 million and $270 million. The adjusted EBITDA(1) prediction remains between a loss of $4 million and a profit of $1 million. After the market close, the company will release its second quarter 2023 results on August 8th.
GRWG Stock Performance
GRWG stock closed at $3.73 on August 2nd, up 9.71% in the last month of trading. In addition, GRWG stock has a 52-week range of $2.77-$8.63 and is down 4.85% year to date. According to analysts at CNN Business, GRWG stock has a 12-month median price target of $4.30. In this case, this represents a 15.44% increase from its last trading price of $3.73.
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The Scotts Miracle-Gro Company
Scotts Miracle-Gro, the world’s largest name-brand consumer lawn and garden product manufacturer, has entered the cannabis industry. Hawthorne Gardening, the company’s wholly-owned subsidiary, provides hydroponic equipment, lighting, and fertilizers for cannabis production. In January, Scotts expanded their Hawthorne collection with True Liberty Bags and Luxx Lights. As a result of the acquisition, Hawthorne will be able to expand its already excellent line of lighting products. Despite a drop in earnings, Hawthorne’s year-end projection remains intact.
Third Quarter Details
- Company-wide third-quarter net sales decreased by 6% due to Hawthorne’s decline of 40%; U.S. Consumer net sales increased by 1% over the prior year.
- Consumer POS dollars were up 8% in the third quarter and over 5% year to date.
- Year-to-date cash flow improved by over $700 million.
- Total Project Springboard savings to exceed $300 million
- Full-year sales and Adjusted EBITDA are expected to decline.
- Amended credit agreement updates leverage glide path providing operational flexibility.
SMG Stock Performance
SMG stock closed at $57.86 on August 2nd, down 7.70% from last month. The stock has a 52-week price range of $39.06-$88.61 and is up 19.08% year to date. According to analysts at CNN Business, SMG stock has a 12-month price target of $77.50 per share. This forecast represents an increase of 33.67% from its last trading price of $57.86.
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Hydrofarm Holdings Group, Inc.
Hydrofarm is a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture, including grow lights, climate control solutions, growing media, and nutrients, in addition to a diverse portfolio of proprietary and innovative branded products. The company has been assisting producers in making growing easier and more productive for over 40 years. The company’s mission is to provide goods that help growers, farmers, and cultivators increase their growth projects’ quality, efficiency, consistency, and speed.
First Quarter 2023 Results
Net sales in the first quarter of 2023 declined to $62.2 million from $111.4 million in the first quarter of 2022 due to a 42.5% drop in volume of products sold, a 1.1% drop in price/mix of products sold, and a 0.6% loss from unfavorable foreign exchange rates. Furthermore, net sales declined 42.5% to $62.2 million in the first quarter of 2023, from $111.4 million in the first quarter of 2022, due to a 42.5% drop in volume of products sold, a 1.1% drop in price/mix of products sold, and a 0.6% loss from unfavorable foreign exchange rates. Furthermore, gross profit declined from $16.6 million in the previous year to $11.4 million in the first quarter of 2023.
The decrease was primarily due to a drop in net sales. For the three months ending March 31, 2023, the gross profit margin percentage grew to 18.3%, up from 14.9% in the same period in 2022. In the first quarter of 2023, restructuring charges of $1.2 million reduced the percentage of gross profit margin.
In the first quarter of 2023, the company lost $(16.8) million, or $(0.37) per diluted share, compared to a loss of $(23.3) million, or $(0.52) per diluted share, in the first quarter of 2022. The company is reiterating its full-year 2023 net sales forecast of $290 million to $310 million, with results now expected to be at the low end of the range, with a moderately positive Adjusted EBITDA(1) for the full-year, in line with previous projections.
HYFM Stock Performance
HYFM stock closed at $1.02 on August 2nd, up 30.43% in the last month of trading. Overall, HYFM stock has a 52-week price range of $0.6720-$5.01, down 34.19% year to date. According to analysts at CNN Business, HYFM stock has a 12-month median price target of $1.25. In this case, this would represent an increase of 22.55% from its last trading price of $1.02.
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Navigating the Ancillary Cannabis Market
The cannabis market setting in Q3 2023 gives investors a unique and compelling opportunity to investigate ancillary cannabis stocks. Overall, as legalization initiatives gain traction and demand for cannabis products rises, the role of hydroponic equipment and agricultural solutions in driving sustainable and efficient cultivation practices becomes increasingly important. Also, investors can position themselves to profit from the industry’s growth and possible high returns by adding top ancillary cannabis stocks to their watch list.
In the second half of Q3 2023, the essential players in the ancillary cannabis sector contribute substantially to the industry. Investors should carefully examine each company’s financial performance, market position, and technical improvements to make informed selections. In addition, the cannabis industry’s fast-evolving nature needs a strategic approach, and intelligent investors must remain watchful to capitalize on emerging trends and events that could determine the future of this profitable market. Investors can position themselves for the future in this fast-increasing sector by staying current on the latest industry developments and closely following ancillary cannabis stocks.
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