GrowGeneration Corp’s Potential Cannot Be Overstated
GrowGeneration Corp (OTCMKTS:GRWG), is not all that well known in the cannabis sector, but after reporting first-quarter financial results that were “transformational,” that could change very quickly.
As one of the largest chains of specialty hydroponic and organic garden centers in the U.S., GrowGeneration has a strong national footprint, aggressive acquisition strategy, and has targeted over $25.0 million in new acquisitions in 2019. It is also working at graduating to a bigger exchange.
GrowGeneration Corp is trading at around $3.10 as of this writing and has advanced 40% year-to-date. While that is indeed impressive, it is nothing compared to what GRWG stock could do in 2019. In fact, it’s quite plausible that GrowGeneration’s share price could double or triple from current levels before the end of the year.
GrowGeneration may not be the kind of cannabis penny stock you can retire on (yet), but it is certainly burning bright and deserves a second or even first look.
GrowGeneration Corp Overview
You can dig for gold or sell shovels. Denver, Colorado-based GrowGeneration Corp owns and operates specialty retail hydroponic and organic gardening stores that sell thousands of products used by commercial and home growers. (Source: “May 2019 Investor Presentation,” GrowGeneration Corp, last accessed May 9, 2019.)
The company currently operates 21 locations in eight states, covering all regions of the U.S., including California (six stores), Colorado (five), Washington (one), Nevada (two), Michigan (three), Rhode Island (one), Oklahoma (two), and Maine (one).
It has near-term targeted expansion plans for Oregon, Arizona, Missouri, Florida, Ohio, Pennsylvania, New York, Maryland, Connecticut, Massachusetts, Vermont, and New Hampshire.
As the largest business-to-business (B2B) seller of specialty hydroponic supplies, GrowGeneration carries and sells a huge array of products. At last count, the company had over 10,000 stock keeping units (SKUs).
Some of its products include organic nutrients and soils, advanced lighting technology, hydroponic and aquaponics equipment, greenhouses, tents, environment controllers, and cloning machines.
GrowGeneration Corp Stock
|GRWG Stock Information|
|Market Cap||$87.4 million|
|Shares Outstanding||28.8 million|
|50-Day Moving Average||$2.94|
|200-Day Moving Average||$3.00|
(Source: “GrowGeneration Corp. (GRWG),” Yahoo! Finance, last accessed May 9, 2019.)
Over the last year, GRWG stock bounced all over the place, which sent many risk-averse investors running for shelter.
Like the broader market, GrowGeneration stock tumbled during the fourth-quarter sell-off. Again, like the broader market, it rebounded sharply in January. Thanks to a number of announced acquisitions, the company’s share price trended higher in the early part of February.
After struggling to find its legs, the company’s share price soared roughly 20% on May 7, after it reported strong first-quarter results and increasing its full-year guidance.
Chart courtesy of StockCharts.com
GrowGeneration Announced 4 Recent Acquisitions
The retail hydroponic industry is highly fragmented and extremely lucrative. If GrowGeneration wants to own and operate branded stores in every major legalized cannabis state in the U.S. and throughout Canada, it needs to have an aggressive acquisition strategy.
As of January 2019, GrowGeneration had $14.0 million in cash for acquisitions. As of this writing, it has $6.6 million in cash. It’s not difficult to see where some of its cash went over the last few months. (Source: “First Quarter 2019 Earnings Conference Call,” GrowGeneration Corp, last accessed May 8, 2019.)
On January, 22, GrowGeneration announced that it purchased all the assets of Chlorophyll, Inc. Also located in Denver, the Chlorophyll superstore has over 20,000 square feet of warehouse and retail space, making it the largest hydroponic store in Denver.
This transaction adds $8.0 million in revenue to the company’s bottom line. It will also be the sixth store in the GrowGeneration portfolio of stores in Colorado. (Source: “GrowGeneration Purchases All the Assets of Chlorophyll, Inc.,” Cision, January 22, 2019.)
In February, GrowGeneration said it purchased certain assets of BWGS, LLC. The transaction includes purchasing all the inventory of BWGS, as well as all their branded products, and bolsters GrowGeneration’s ability to supply private label “house” products to its customers. (Source: “GrowGeneration Purchases Assets of BWGS, LLC.,” Cision, February 4, 2019.)
It also acquired the assets of Palm Springs Hydroponics. In operation for over 18 years, Palm Springs Hydroponics will be GrowGeneration’s 22nd location and seventh store in California. The company’s business in the California desert region is now over $5M in sales. (Source: “GrowGeneration Acquires The Assets Of Palm Springs Hydroponics,” Cision, February 7, 2019.)
And on February 11, GrowGeneration announced it acquired the assets of Reno Hydroponics. As an established leader in their market, Reno Hydroponics has been operating for over 10 years. The Reno store will be GrowGeneration’s 23rd location and its second in Nevada. (Source: “GrowGeneration Acquires The Assets Of Reno Hydroponics,” Cision, February 11, 2019.)
GrowGeneration Reports Another Record Quarter
GrowGeneration has a history of reporting record revenue growth. The first quarter of 2019, though, was, in the company’s words, transformational.
First-quarter revenue was $13.1 million, a 199% increase over the $4.4 million recorded in the same prior-year period. Same-store sales were up 42% compared to the first quarter of 2018. (Source: GrowGeneration Corp, op cit.)
During the quarter, GrowGeneration acquired stores in Denver, Colorado; Palm Springs, California; and Reno, Nevada. It also opened locations in Tulsa, Oklahoma and Brewer, Maine.
Net income was $229,000 compared to a net loss of $953,000 in the first quarter of 2018. Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $615,000 compared to an adjusted EBITDA loss of $366,000 in the first quarter of 2018.
Store operating costs, as a percentage of revenue, declined 26% from 20.4% for the first quarter of 2018 to 15% for the first quarter of 2019.
Corporate overhead declined 107%, from 21.8% of revenues in the first quarter of 2018 to 10.5% of revenue for the first quarter of 2019.
As of March 31, 2019, GrowGeneration had $6.6 million in cash and cash equivalents. It also had working capital of $17.4 million compared to working capital of $21.6 million at December 31, 2018.
Co-Founder and CEO Darren Lampert said:
The company’s first quarter financial results were transformational. We improved the financial performance of the company in all areas. With Q2 being our traditional strongest quarter, revenue and net income are trending significantly higher than our Q1 numbers.
GrowGeneration appears to be doing everything right. Already the largest B2B seller of specialty hydroponic supplies, GrowGeneration is making good on its desire to own and operate branded stores in every major legalized cannabis state in the U.S. and Canada.
The company continues to enter markets where cultivation laws are conducive to growing and there is a high concentration of growers.
Judging by its recent numbers, GrowGeneration’s plan is working. First-quarter revenue was up almost 200% year-over-year and roughly 50% sequentially.
Looking forward, GrowGeneration increases its guidance for 2019 revenue to $60.0 million to $65.0 million. At the midpoint, that represents a 115% increase over the $29.0 million recorded in 2018. The company also increased its full-year 2019 guidance for adjusted EBITDA to $0.14 to $0.18 per share.
In April, GrowGeneration forecasted full-year revenue of $52.0 million to $58.0 million and adjusted EBITDA of $0.12–$0.16 per share for 2019.
Again, not a lot of people talking about the untapped potential of GrowGeneration, but with the company working at graduating to a bigger exchange, that too shall pass.
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