Marijuana legalization laws are sweeping the U.S. and creating a huge new customer base for one large company willing to place big money on the trend. In an effort to attract both large and small cannabis growers, lawn-and-garden giant Scotts Miracle-Gro is increasing its investment in hydroponics, a method to grow plants without soil.
Through its subsidiary Hawthorne Gardening Co., Ohio-based Scotts Miracle-Gro has been spending money to buy companies that specialize in hydroponics. Company leaders believe these newly acquired businesses will ultimately help them take advantage of marijuana legalization.
Its top executive, CEO Jim Hagedorn, is driving Scotts Miracle-Gro's principal commitment to the marijuana industry. Predicting a multi-billion dollar profit opportunity, he is willing to bet $500,000 on legal weed.
"Invest, like, half a billion in the pot business," Hagedorn told Forbes. "It is the biggest thing I've ever seen in lawn and garden."
On Monday, Hawthorne finalized a deal to buy Botanicare, an Arizona company that provides plant nutrient products and hydroponic growing systems. The terms of the deal have yet to be disclosed.
Earlier this year, Hawthorne spent $136 million to acquire a 75 percent stake in grow-lighting maker Gavita Holland BV. Gavita will keep the other 25 percent ownership, and the current management will remain.
In 2015, Scotts Miracle-Gro bought General Hydroponics for $130 million. At the time of the purchase, General already had a strong customer base made up of cannabis growers in areas with marijuana legalization laws.
It has been decades since the company has made any similar investment moves, and once the Botanicare purchase is complete, it is unlikely additional buys will be made. According to a recent statement, the company will "transition away from acquisitions" and focus more on investment return for shareholders.
After visiting two different home improvement stores in Yakima, Washington, Hagedorn saw a tremendous opportunity for hydroponics equipment sales. Hagedorn spoke with one of the store managers and learned that customers were demanding the equipment and willing to pay top dollar for it.
After his experience, the shrewd CEO saw a way for Scotts Miracle-Gro to expand and profit from marijuana legalization.
"And we're not getting into pot growing. We're talking dirt, fertilizer, pesticides, growing systems, lights. You know it's a multibillion-dollar business, and we've got no growth in our core."
Hawthorne, headed by Hagedorn's son Chris, was born shortly thereafter. The company, which sells hydroponics equipment and organic soil, grew over 300 percent in 2015 and is on track to report $250 million in sales. Hawthorne will likely separate from Scotts and become its own reporting entity by the end of the year.
According to Hagedorn, expanding the hydroponics business to target cannabis growers simply makes sense. During a call earlier this week, the company's leader told investors Scotts Miracle-Gro is pointed in the right direction with the right ideas to take advantage of the "high margin, high growth" trend of marijuana legalization.
Hagedorn grew up with Miracle-Gro. His father built the company from a small start-up to a national brand. After merging with Scotts in 1995, Hagedorn took over the combined company as CEO in 2001. With $3 billion in annual sales, Scotts Miracle-Gro rakes in roughly $160 million in profit.
So far, four states have legalized recreational marijuana, and several others may get the chance to vote on the issue come November. The District of Columbia and 25 states have laws allowing cannabis use for medicinal purposes.
With larger margins and year-round demand, the hydroponics industry already has a much higher revenue growth than the traditional lawn and garden industry. As more states pass marijuana legalization laws, the world's largest maker of lawn-care products may be in the right place at the right time to make a winning bet on legal weed.
[Photo by Rick Thompson/iStock]