GrowGeneration Corp.
GRWG
recently announced that it has acquired Grassroots Hydroponics — one of the largest hydroponic operations in Southern California. The buyout will add annual revenues of around $20 million to the company. Following the acquisition, Grassroots Hydroponics’ three high-volume retail locations — Anza, Lake Elsinore and Murrieta — will be part of GrowGeneration’s fleet of retail stores, taking the total number to 39 stores. It is worth mentioning that out of these stores, 13 are located in the promising California market. This deal takes the company a step closer to its aim of expanding to 50 garden centers and 15 states in 2021.
This buyout comes on the heels of GrowGeneration’s acquisition of The GrowBiz last month. Notably, GrowBiz is the third largest chain of hydroponic garden centers in the United States and operates through five stores located across California and Oregon. These acquisitions are in sync with the company’s plans for rapid expansion in California. Hydroponics has been a staple in cannabis cultivation and as states across the country continue to legalize cannabis, the company’s products are in demand. Considering that California accounts for 20% of the United States’ legal cannabis sales and its cannabis market is projected to grow to $5 billion by 2022, it is a crucial market for the company.
GrowGeneration has been active on the acquisition front with the Grassroots acquisition being the seventh acquisition this year. On Dec 11, 2020, the company completed a previously announced upsized underwritten public offering of an aggregate of 5,750,000 shares of its common stock at a public offering price of $30.00 per share for gross proceeds of approximately $172.5 million. The company intends to utilize the proceeds primarily to expand its network of hydroponic/garden centers through organic growth and acquisitions, for general corporate purposes and pursuing strategic opportunities. Its mission is to own and operate GrowGeneration branded stores in all the major states in the United States and Canada.
The company is witnessing strong sales in both retail and online channels. In the first nine-month period of 2020, net income from store operations soared 163% to $22.6 million. The company is averaging 12,000 walk-in transactions per week. Its commercial division sells to large commercial customers, who are primarily licensed growers of medicinal and non-medicinal cannabis. In the first nine-month period of 2020, the commercial division’s revenues skyrocketed 200%. The division currently services around 1,000 commercial accounts. The company has identified over 14,000 licensed hemp and cannabis growers in the United States, and believes there is significant room to expand base of commercial customers.
For the nine months ended Sep 30, 2020, GrowGeneration’s online revenues soared 140% year over year to around $7 million. New visitors to its website are trending over 100,000 per month. The company has rebranded its existing e-commerce operation, HeavyGarden.com and GrowGen.Pro, as growgeneration.com, which will be an omni-channel sales approach to facilitate e-commerce across all its locations. It will be customer friendly and provide the delivery option or pick-up from store. This initiative is expected to bolster sales.
The company’s focus on margin-expansion strategies that include furthering the deployment of more private label products and driving efficiency at the purchasing level is likely to drive growth in the near term.
Price Performance
Shares of the company have soared 120.8% in the past three months, compared with the
industry
’s growth of 21.8%.
Zacks Rank & Stocks to Consider
GrowGeneration currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are
Bunge Limited
BG
,
Koppers Holdings Inc.
KOP
, and
Clearwater Paper Corporation
CLW
. While Bunge sports a Zacks Rank #1 (Strong Buy), Kopper and Clearwater Paper carry a Zacks Rank #2 (Buy), at present. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Bunge has a projected earnings growth rate of 43% for the current year. The company’s shares have gained around 38% in the past three months.
Koppers has an expected earnings growth rate of 16% for the ongoing year. Shares of the company shares have appreciated 27% over the past three months.
Clearwater Paper has an estimated earnings growth rate of 1961% for 2020. Over the past three months, the stock has gained nearly 18%.
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