If you want to grow marijuana indoors, having plenty of gardening supplies, like fertilizer, grow lights, and hydroponic systems, is essential. Why is this relevant to investors, you might ask? Because the cannabis boom is only just beginning, and one company in particular is already making a splash selling the right products to the right customers.
Rather than selling cannabis directly to consumers, GrowGeneration (NASDAQ: GRWG) focuses on selling hydroponics equipment and plant nutrients to cannabis companies of all sizes. This means that it should benefit tremendously from the current wave of marijuana legalization in the United States, and that is exactly what makes it the best stock of cannabis around.
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New growth is coming over the next two years
GrowGeneration’s regional positioning for the cannabis boom is unmatched. By 2023, it will have 100 outlets in the United States, nearly double its current total of 52. Its existing stores are focused on the hottest cannabis markets, including California, Colorado, Michigan. and Massachusetts. Importantly, the company is also opening new stores in states like Illinois, Pennsylvania, and New York, where recent advances in legalization will soon give way to new, burgeoning cannabis companies thirsty for grow equipment. .
It is important to note that each new cannabis producer can contribute to the company’s income on an ongoing basis. First, customers buy the environmental controls, grow lights, and hydroponic systems to install their facilities. Then these customers can contract with GrowGeneration as a supplier of fertilizer and growing media, which they need on a recurring basis. About 60% of the company’s revenue comes from the sale of consumables that are likely to be recurring, so every new customer is quite valuable in the long run.
Even in states that aren’t vibrant cannabis markets, management expects newly opened stores to have a payback period of around 1.5 years, which is pretty short. Most recently, she rented a location in Mississippi in hopes of capitalizing on the newly legalized medical cannabis market there. This will support revenue growth down the road, not to mention provide a more immediate boost in the coming quarters.
Hydroponic platforms are selling like hot cakes
The latest GrowGeneration earnings report was a real sizzle. In the first quarter of 2021, its revenue exploded 173% year-on-year to $ 90 million. Investors will also be delighted to hear that gross margins have fallen from 27.1% to 28.2%. This margin growth occurred amid a slew of acquisitions, which saw the company swallow up a total of four small hydroponics operators across the country as well as several other businesses. As the company has little debt, these acquisitions are unlikely to slow down its future expansion.
GRWG turnover (quarterly) given by YCharts
Management was so pleased with the company’s performance that they raised their financial guidance for 2021, estimating that GrowGeneration could generate up to $ 470 million in revenue and $ 58 million in adjusted profit before interest, taxes, depreciation. and amortization (adjusted EBITDA).
While the market reaction to the news has been subdued, continued performance like this will be hard to ignore in the future. All in all, GrowGeneration has the ingredients for robust and continued growth. As long as the cannabis industry in the United States continues to rise, it is difficult to see how GrowGeneration does not continue to soar with it.
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