GrowGeneration Corp: Pot Stock Explodes on Record Q3 Results & Increased Guidance

GrowGeneration Stock Up 548% in 2020; Just Getting Started

GrowGeneration Corp (NASDAQ:GRWG) is a pot stock I’ve been following for more than a year. Now it’s finally getting the attention it deserves. Wall Street’s failure to see the long-term value in GrowGeneration stock has been a disservice to investors.

The company has a rock-solid balance sheet, it has reported record revenue and net income for 11 consecutive quarters, it has continued to announce new acquisitions, it has been expanding into new markets, and it has raised its guidance for 2020 and 2021.

This might explain why GRWG stock has advanced 534% year-over-year, 548% year-to-date, and 921% since bottoming in March.

It doesn’t hurt that the Democrats will be taking the White House in January. During the U.S. presidential election campaign, Vice-President-elect Kamala Harris said she would decriminalize the drug. How soon that will take place is open for debate.

During the election, many U.S. voters gave marijuana the thumbs up. All five states that held votes on the legalization of recreational or medical marijuana passed their initiatives.

Arizona, Montana, New Jersey, and South Dakota voted to legalize recreational marijuana. South Dakota also approved a medical marijuana initiative, and Mississippi approved two medical marijuana initiatives.

Today, 15 states plus D.C. have legalized recreational cannabis while 35 states plus D.C. have approved medical cannabis. And more states are lining up to do the same.

All of which is excellent news for GrowGeneration Corp, which wants to be the Home Depot Inc (NYSE:HD) of cannabis.

Chart courtesy of StockCharts.com

GRWG Stock Overview

GrowGeneration is the biggest hydroponic equipment supplier in the U.S., with 31 locations in 11 states, including California, Colorado, Michigan, Nevada, Washington, and—most recently—Arizona. The company is also targeting Illinois, Missouri, New Jersey, New York, and Pennsylvania. (Source: “Company Overview,” GrowGeneration Corp, last accessed November 27, 2020.)

For those who’d rather shop from GrowGeneration online, they can use the site “HeavyGardens.com.”

In addition to selling more than 10,000 hydroponic products to individual home growers and large multi-state operators, the company sells its own private-label products under the “Sunleaves” banner.

GrowGeneration Corp is backed by private equity from the founders of Cronos Group Inc (NASDAQ:CRON), Gotham Green Partners, Navy Capital Green Management, LLC, and Merida Capital Partners.

Acquisition of The GrowBiz

In November, GrowGeneration announced plans to acquire The GrowBiz, the third-largest chain of hydroponic garden centers in the U.S., with five stores in Oregon and California. The deal is expected to close by year-end. (Source: “GrowGeneration Signs Asset Purchase Agreement to Acquire Nation’s Third-Largest Chain of Hydroponic Garden Centers,” GrowGeneration Corp, November 2, 2020.)

The acquisition will bring the total number of “GrowGen” hydroponic garden centers in California to 10 and in Oregon to two. The GrowBiz is expected to generate annual revenue of approximately $50.0 million.

Record Q3 2020 Results

On November 11, GrowGeneration announced that its revenue for the third quarter of 2020 increased 153% year-over-year to a record $55.0 million. This topped Wall Street expectations of $47.4 million and represents the company’s 11th consecutive quarter of record revenues. (Source: “GrowGeneration Reports Record Third Quarter 2020 Financial Results,” GrowGeneration Corp, November 11, 2020.)

The company reported record third-quarter net income of $3.3 million, or $0.07 per share, a 230% increase over the third-quarter 2019 net income of $1.0 million, or $0.03 per share. Analysts were looking for third-quarter 2020 earnings per share of $0.06.

Third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a record $6.6 million, up 230% from the third quarter of 2019.

GrowGeneration Corp ended the third quarter of 2020 with cash of $55.3 million, up from $13.0 million on December 31, 2019.

Thanks to the strong results, the company announced that it was increasing its 2020 revenue guidance to $185.0–$190.0 million and its adjusted EBITDA guidance to $19.0–$20.0 million.

Management also raised their guidance for 2021, with revenue guidance in the range of $280.0–$300.0 million and adjusted EBITDA guidance in the range of $34.0–$36.0 million.

Analyst Take

GrowGeneration Corp has everything going for it, and Wall Street is just waking up to that fact.

The company has a long history of revenue growth and profitability. It also recently completed the most aggressive merger-and-acquisition quarter in its history. By the end of 2021, GrowGeneration expects to have 50 garden centers in 15 states.

The positive results of the recent elections and ballot initiatives on marijuana legalization, combined with the company’s ability to scale, will allow GrowGeneration to grow its revenue and expand its bottom line.