Cultivation Archives - Page 2 of 12 - Green Market Report

Adam JacksonAugust 3, 2022
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6min3571

Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM) stock plunged by 28% in early trading to lately sell at roughly $2.35 after the hydroponic company reported declining sales following the market close on Tuesday. Hydrofarm said it is looking to shave down its costs and restructure as deflated earnings continue to tap its pockets.

The manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture, the company released a preliminary unaudited financial report card for its second quarter ending June 30, 2022.

Hydrofarm posted estimated net sales of $96.0 million to $97.5 million, versus $133.8 million for the same period last year, representing a dip of approximately 28% calculated using the midpoint of the range. This also missed the Yahoo Finance average analyst estimate for revenues of $126 million.

Losses Build

The net loss is expected to range between $210.4 million and $200.4 million, versus a net income of $2.3 million in the same period last year. The net loss range includes estimated non-cash expenses of $189.6 million in goodwill impairment and $10.2 million in inventory reserve recorded at the end of the second quarter.  The company said that declining valuation trends within the industry and in the broader market “adversely impacted the company’s market valuation since its last quarterly report and triggered a full evaluation of the goodwill arising from prior acquisitions.”

The company also posted estimated adjusted EBITDA losses in the range of $8.4 million to $6.9 million, versus a $16.2 million gain in the same period last year.  It attributes the losses to lower net sales and falling gross profit margins — as well as higher labor and freight costs.

“We took positive steps during the second quarter to lower our cost structure and maintained a solid liquidity position,” CEO Bill Toler said. “However, the hydroponics industry recession in the U.S. and Canada continued to alter normal seasonal patterns and impacted our results. While we experienced encouraging results in March and April, sales trends weakened in the second half of the second quarter, disrupting our expected sales mix and resulting in net sales, net loss and Adjusted EBITDA below our internal expectations for the full quarter.”

The company said it has $27.4 million in cash, cash equivalents, and restricted cash, an aggregate principal amount of debt outstanding of $126.7 million – including $0 drawn on the company’s revolving credit facility, approximately $124.4 million in principal balance on its Term Loan and approximately $2.4 million in finance leases and other debt.

Toler continued, “Through our team’s net working capital management, we increased our cash position, lowered our net debt and maintained a solid liquidity position during the second quarter. Our team has also enacted additional expense-cutting measures, to further reduce our costs. When coupled with our prior cost savings actions, we estimate that we have reduced our costs by approximately $14.0 million on an annualized basis.”

Hydrofarm also has $15.3 million in contingent payments and can borrow around $71 million capacity under its revolving credit agreement. The company lowered its net debt by approximately $14.1 million during the second quarter by improving its working capital position and controlling costs. The company said it was in compliance with all debt covenants at the end of the period.

“Sales trends in July suggest that the overall industry continues to face headwinds and that typical seasonal patterns may not apply for the duration of this year,” Toler said. “For these reasons, we are revising downward our estimates for the remainder of the year. While we expect the industry to return to growth in the future, as highly populated states in the Eastern U.S. actively implement adult-use cannabis legislation and more mature states in the Western U.S. normalize, predicting the exact timing of a return to historical growth remains a challenge for the industry.

As a result, he said, “we will continue to focus on further cost-saving opportunities and liquidity actions to ensure that our leadership position in the hydroponics industry strengthens during this industry downturn.”

Lowered Outlook

With the new guidance, Hydrofarm expects approximately $330.0 million to $347.0 million in net sales “combined with some further reduction to account for the holiday-shortened months in the fourth quarter.” In October 2021, Hydrofarm lowered its outlook from a range of $565 million to $590 million of net sales to approximately $470 million to $490 million – a sign of just how bad sales have plunged.

The company — whose president stepped down in June — also said that it incurred severance costs during the period as it cut part of its workforce “to optimize our cost structure.”


Debra BorchardtAugust 3, 2022
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5min4431

The Scotts Miracle-Gro Company (NYSE: SMG) saw its shares pop in early trading despite the gardening company’s downbeat earnings. The lawn care and hydroponic company released its results for the third quarter ending July 2, 2022, with sales falling by 26 % on declines in both major business segments to $1.19 billion. This missed the Yahoo Finance average analyst estimate for sales of $1.23 billion.

U.S. Consumer segment sales declined 14 %  to $904.5 million from $1.05 billion. The hydroponic group called Hawthorne said sales decreased 63% to $154.5 million compared with $421.9 million during the same period last year.

Scotts reported a GAAP net loss per share of $8.01, which includes pre-tax impairment and restructuring charges of $724.2 million. Non-GAAP adjusted earnings per share, which is the basis of the Company’s guidance, was $1.98. On a positive note, SG&A decreased 30% to $135.8 million due to lower accruals for annual incentive compensation and cost-reduction efforts.

CEO Jim Hagedorn said, “While consumer purchases are down 8 percent in units year-to-date, that performance is in line with the guidance we laid out at the beginning of the year. We are extremely encouraged that consumer purchases in May and June were at near-record levels, once again showing the resiliency of the category. Unfortunately, shipments to our retailer partners did not keep pace with consumer demand, as retailers in all channels took steps to lower their own inventory levels.”

He added, “The lower-than-expected sales in our U.S. Consumer segment, combined with continued pressure on Hawthorne sales due to oversupply issues in the cannabis industry, leave us unsatisfied with our financial results and with higher leverage than we want to maintain. That is why we have launched the business transformation effort we are calling Project Springboard, which includes a series of aggressive steps to return the business to an appropriate level of performance.

GAAP loss from continuing operations was $217.5 million, or $3.91 per share, compared with income of $566.0 million, or $9.90 per share, in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring, and other non-recurring items, were $343.3 million, or $6.11 per diluted share, compared with $573.1 million, or $10.04 per diluted share last year.

Hawthorne

Hawthorne segment sales decreased 63 percent to $154.5 million compared with $421.9 million during the same period last year. Year-to-date Hawthorne sales decreased 50% to $547.7 million. Some of the company’s losses stemmed from Hawthorne, which saw impairment charges of $632.4 million related to goodwill and certain intangible assets in the segment. Scotts said it took inventory write-down charges of $45.9 million with its decision to discontinue and exit the market for certain lighting products and brands.

Looking Ahead

Scotts dropped its full-year sales guidance in the U.S. Consumer segment due to lower-than-expected replenishment orders from retail partners. The company said it now expects sales to decline 8 to 9%. The company also said it expects further SG&A favorability and is now guiding full-year SG&A down 15%. As a result of these changes, the full-year adjusted EPS outlook is now expected to be $4.00 to $4.20.

“Our guidance in early June accounted for the reduction in May replenishment orders that we saw at our largest customers,” Miller said. “However, retail inventory reduction efforts have accelerated throughout June and July, driving a larger decline in our full-year sales expectation. The outlook for SG&A has improved from the previous guidance we communicated in June. The Project Springboard team achieved the initial cost savings target and identified additional opportunities to reduce spending across the business.”


Debra BorchardtJune 22, 2022

6min2991

When Scotts Miracle-Gro (NYSE: SMG) first began telling shareholders that its hydroponic subsidiary Hawthorne was slowing in sales, it seemed like a temporary situation. That might not be the case. A new in-depth report by Wells Fargo analyst Chris Carey based on survey data collected by Cannabiz Media is depressing, to say the least. Reality bites.

Carey’s response to the study has promoted him to downgrade shares of Scotts to Equal Weight and roping his price target to $85 (from $115). The stock was lately selling at $75. He also cut his price targets on Hydrofarm (NASDAQ: HYFM) to $4 from $7 and GrowGeneration (NASDAQ: GRWG) to $3.50 from $4.00.

The report reached out to thousands of growers to ultimately develop a list of ~500 licensed cannabis cultivators responding across 6 states, via online surveys and hours of phone conversations. The study found that “Overall, 62% of cultivators feel “bad” or “terrible” about their current markets vs only 8% that feel “good” or “great”. When asked “what is going well for your business today?” ~20% responded with the equivalent of “nothing.” California was by far the state with the lowest sentiment with 70% of cultivators feeling “terrible” about the market, 16% feeling “bad” and only 5% ‘good’ or ‘great’.” The critical point here is that California has the worst outlook and it accounts for almost a third of the overall cannabis market. 

While other hydroponic companies have stated in earnings releases that they believed the landscape would improve by the end of the year, this report suggests otherwise. “Most growers we surveyed are not expecting things to improve in the near term, with only 14% expecting improvement in 6 months or less. Interestingly, 46% of respondents don’t know when things might improve underscoring the lack of visibility that has plagued the industry. While some capacity exiting is one of the few bright spots for the industry, we would likely need to see a higher level of exits or reduction in production to become more constructive.” When almost half of the growers say they have no idea when their market will improve, it’s not only a bad sign for farmers but the entire industry.

Stress Points

The survey uncovered the issues causing the stress at the beginning of the cannabis food chain. Declining wholesale prices led the way, followed by burdensome compliance requirements, taxes, illicit market competition and lack of distribution. Small growers can’t compete with the cost efficiencies of corporate cannabis and as the prices fall for their products, they are losing money. One grower told the group that they thought they’d sell cannabis anywhere between $1800 and $2200 a pound, but instead it’s going for $400 a pound. A California cultivator said he was selling cannabis at $200 a pound and paying $150 a pound in taxes. 

The survey on prices found that 60% said they were selling cannabis for under $750 a pound. 14% were selling between $751 and $1250, 18% were selling a pound between $1251 and $1500, and the rest (9%) were above $1500. They say they aren’t hitting the cost of production and many are considering selling their licenses or just giving up. 

The respondents seemed mixed on the effects of the illicit market. Some cited it as a major problem with these players flooding the market, while others didn’t think it was as big an issue as the regulatory requirements. Compliance requirements were a major stumbling block with one growing mentioning METRC as a challenge to deal with.

Plowing Ahead

The really sad part of the report was all the comments of cultivators wanting out. With little positive outlook and no idea when things will get better, many expressed the desire to just give up.  37% said that they have thought about leaving the industry but haven’t taken any steps to exit yet. Some are continuing to keep plowing ahead. The report said, “Cultivators indicated intentions to purchase soil (61%) and nutrients (73%) next 6 months, but just 32% have plans to buy lighting.” Only 18% of respondents described plans to decrease cultivation in the next 12 months compared to 35% planning to increase. 

However, in a standard investor philosophy, a correction can ultimately be a good thing. If lots of cultivators leave the industry, that will eventually lead to less supply and higher prices. Yet, a correction like this would take a long time to trickle down, and in the meantime, there is little positive to point to.


Debra BorchardtJune 8, 2022
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6min2471

The Scotts Miracle-Gro Company (NYSE: SMG) said consumer purchases of its core lawn and garden brands surged in May with unit volume now trending towards the company’s original assumptions for the season. However, a variety of factors are causing Scotts to lower its outlook for both sales and adjusted earnings for fiscal 2022. the stock was sliding over 13% in early trading to $88.50. The 52-week high for the stock was $204.

Adjusted earnings per share are now expected in a range of $4.50 to $5.00. U.S. Consumer sales are expected to decline by 4 to 6%. The hydroponic subsidiary Hawthorne says its sales are now expected to decline 40 to 45% for the year ending September 30, 2022. Entering May, Hawthorne sales had begun to show signs of strengthening but momentum in the business slowed again during the month as expected improvement in outdoor cultivation has been slow to materialize.

“The recent improvement in consumer engagement has POS units trending toward our initial expectations and we expect further gains as the year continues,” said Jim Hagedorn, chairman and chief executive officer. “POS dollars, however, will likely fall short of our initial assumption of flat from 2021 levels due primarily to above average declines in lawn fertilizer and grass seed, which command higher prices and margins but also tend to be more susceptible to poor spring weather. While there remains enough time in the year to see continued improvement in our controls and gardening categories, that is not likely to be the case with most of the products in our lawn care portfolio.

Consumer purchases at the company’s largest retail partners were at near-record levels in May, resulting in year-to-date POS that is approximately 6 percent lower in dollars and 9 percent lower in units than a year ago. The year-over-year decline at the end of May was half of what it had been entering the month due to strong results in all major markets in the Midwest and Northeast.

“Also, while it is encouraging that consumers have demonstrated lawn and garden activity remains an important part of their lifestyle, we did not see the replenishment orders we expected from our retailer partners since mid-May. In fact, retailer orders were more than $300 million below our plans for the month in the U.S. Consumer segment alone. This surprising trend has put significantly greater pressure on our fixed cost structure that, when coupled with the commodity cost increases we have experienced since the start of the war in Ukraine, will cause us to fall well short of the revised financial targets we established in March.”

“The changes we have seen since our last public comments in early May are clearly not what we would have expected,” Hagedorn said. “The revised guidance we are providing is our best estimate of where things currently stand in a fluid and rapidly evolving market. While we are striving to deliver the best outcome for fiscal 2022, our focus is shifting toward the future. We are committed to taking decisive steps to improve our margins and cash flow in fiscal 2023 and get the business back to a level of performance that our shareholders rightfully expect.”

The company also said it is engaged in highly productive discussions with its lenders to obtain a temporary increase in the leverage ratio allowed under a revised credit facility.

“We have stated for years that our comfort zone for leverage is 3.5 times debt-to-EBITDA and current facility allows for leverage up to 4.5 times,” said Cory Miller, executive vice president, and chief financial officer. “Given the external factors currently impacting the business, we are seeking to adjust our debt covenants to allow for up to two additional turns of leverage in the near term to maintain the appropriate level of flexibility in navigating the current market conditions. Obviously, we are focused on implementing aggressive plans to improve cash flow, reduce debt, and return leverage to our target levels as quickly as possible.”

Over the past month, the company also said it has moved aggressively to reduce full-year SG&A through a series of organizational changes that created operational and management-level efficiencies.

“The decisive steps we have taken to reduce expenses will result in a year-over-year decline of 12 to 13 percent in SG&A for fiscal 2022,” Miller said. “We would expect to incur restructuring charges in both the third and fourth fiscal quarters as a result of these actions which we would remove from our adjusted earnings for the year, consistent with our long-held practices related to these non-recurring costs.”


Debra BorchardtMay 23, 2022
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24min3950

Editors note: This interview has been edited.

Green Market Report Executive Editor Debra Borchardt: 

When we look at what’s happening in the hydroponics market, it’s really not just a Hawthorne issue, it’s across the board. All these companies were saying things had slowed down, but that the market was going to get better at the end of the year. We weren’t getting a whole lot of color on what was happening. Is it that certain states were slow to get going? Is it that there was just truly oversupply? There are so many reasons why this slowdown could have happened. What’s happening here?

Chris Hagedorn, Division President of Hawthorne Hydroponics (NYSE: SMG)

It’s not any one specific discrete issue. I think it’s a combination of, and just some really poor timing. So if you look back at the history of cannabis and wholesale cannabis pricing, to the extent that we have a sort of a dependable history on that data, which obviously I think you know is relatively hard to come by in this industry, certainly compared to more normal mainstream and kind of, historically tracked industries

If you look back at the wholesale data, there is kind of a cyclical nature where the wholesale price will get kind of overcooked and that’ll sort of compell a bunch of people to start growing or increase in their capacity that in turn will drive, then you’ll start to see capacity or supply begin to outstrip demand. And then you end up in a trough-like we’re in. So we’re seeing that. hat’s nothing new to the industry.  That’s happened every four or five years, as far as we can tell kind of as far back as we can track it.

If you look back over a 10-year period or so, you see it again. It happens in this kind of wave pattern, which is again, not unusual. I think what’s amplified a bit this year is again, it’s a few things. Part of it is oversupply and that’s at the national level. Also, I think we were tracking growth in Oklahoma over the past few years that was triple or quadruple-digit in our business. 

We’re seeing our business in Oklahoma grow by a thousand percent quarter over quarter. Obviously, that’s not growth that’s sustainable. I think one of the things that we didn’t count on, because we thought the disruption that this industry saw back in 2018, which was largely in our estimation driven by California’s move from prop 215 to prop 64. We sort of told ourselves, that California is by far, the biggest candidate market. Our biggest market at the time as it was over 50% of our business.

What we did not count on was the shift towards Oklahoma, not only for the legal but for illicit growers as well. That was something that we didn’t fully understand. I think it boils down to a few different things. There was the permissibility of the regulatory market there, which is similar to what we saw in places like Oregon and Washington back in 2018, just a really low barrier to entry, so a lot of growers flowing into the state and setting up their operations. What we really didn’t understand and it’s one of those things, like a lot of things that seems kind of intuitively obvious in hindsight, but at the front end was just something we missed, was the scale of the grows in Oklahoma.

I’m talking large outdoor grows in Oklahoma that covers five or 10 acres, whereas illicit grows in California on a hillside up in Humboldt, it’s an acre or two at most. So these grows in Oklahoma, just the scale of them is kind of in the orders of magnitudes larger. So the amount of cannabis that was flowing into the marketplace was causing wholesale prices to trend in a negative direction. Probably about this time last year we started to say, okay, we’re seeing potential storm clouds on the horizon and sure enough kind of those bore out. 

Green Market Report:

So you think that this illicit cannabis was going to all the other markets?

Chris Hagedorn, Hawthorne:

Yeah. I think a ton of that product, whether it was initially grown for the legal market and was diverted, or it was grown from inception for the illicit market, I am firmly a believer that that product has flowed outing nationally and it has crushed the wholesale pricing.

Green Market Report:

We knew a lot of the Oregon illicit product was in New York. That was pretty easy to ask people and was, well anecdotally documented, because that’s the only way you can track any of this is, anecdotally asking people.

Chris Hagedorn, Hawthorne:

T your point, we have the same experience that when one considered hard concrete data is, as I said, hard to come by here, the anecdotal information that we’ve gathered says, “Yeah, the Oklahoma market has been a big source of this.” They’re not alone. California, certainly there were some large newer, large outdoor grows there. California had and we’ve talked about this. I think we’ve talked about it publicly, but if not it’s nothing secret.

Green Market Report:

Well in Oregon, everybody knew Oregon was way oversupplied and they just were selling for pennies on the dollar to just unload product.

Chris Hagedorn, Hawthorne:

Exactly, trying to move product.  I think there are other things that have amplified the downturn. So there’s this flood of material. When you look at a state like Michigan, which is our second biggest market for Hawthorne by a pretty good margin. The legislature up there was considering changing the caregiver laws pretty dramatically and I think moving the plant count from like 75 down to like 20 or 25, I don’t have the exact numbers. Now that did not end up taking place. But again, the information that we’ve gathered says there was so much momentum and that it still could happen, but there was so much momentum and noise in the state about putting severe restrictions on the caregiver market there, that a lot of folks just pulled back on investments thinking we’re not going to build new cultivation capacity. We’re just going to kind of slow things until we understand how the market for the caregivers is going to shake out in Michigan. That put a damper on investment, which obviously flows back to us for all the infrastructure items we sell, like lights and dehumidifiers and everything.

Then on top of that, there’s obviously the macro overlay of the federal government that just cannot get off its ass and actually move this issue forward. I think everyone expected with the Democrats controlling kind of all three levels between the White House, Senate, and Congress, that they would seize the opportunity to move this thing forward. They haven’t done it, which is extremely frustrating.

For investors, I think it said, “Look, they’re going to lose at least one side of the house, if not both at the midterms.” We shouldn’t have any faith that the Republicans are going to take this, though honestly, as a sort of disillusioned independent, I don’t understand why either party doesn’t just seize this as a political silver bullet, but they haven’t. So I think at the macro level for kind of institutional level investors, there’s just, there’s no enthusiasm right now because the federal government’s not doing anything to help. 

Green Market Report:

Do you think that as New York progresses in its program decision making, there might be opportunities there because I know not so much New Jersey, but definitely New York, they’re trying to really tap into the small grower market. They have these micro licenses that they’re offering, which is kind of appealing to a lot of the smaller people that don’t have big money, like some of these MSOs, some of the legacy people, or do you think that’s just not going to ever really develop into any kind of sizable market?

Chris Hagedorn, Hawthorne:

I do. I think you’re going to see some large-scale cultivators obviously sort of taking a claim for themselves and hopefully doing it right. It’s one of the issues that I’ve had with a lot of kind of large scale. I say this at the risk of upsetting our customers, the large-scale kind of corporate style, MSOs that have not placed an emphasis on quality. So I hope that people kind of learn that lesson and put more of an emphasis on that because I just think it’s better for consumers, and ultimately I think it’ll be better for the businesses and the brands they’re trying to create. As far as the craft scale growers being given an opportunity, I think New York is creating those opportunities not only just for small growers, but specifically for social equity style growers and retailers.

Chris Hagedorn, Hawthorne:

Vermont is another state focused on the small grower. Their mindset is very much supporting smaller craft growers and I think it’s a really great concept they have. Look at a state like Vermont, which is, it’s one of, if not the least populated state, but it punches way above its weight in certain industries, like beer and cheese. Vermont’s got nationally known and kind of beloved and respected beer and cheese brands that you may not be able to buy anywhere outside of Vermont. If you can, it’s only within kind of a few states radius, but they still are kind of nationally renowned. There is an opportunity by clearing a way for smaller, higher-end craft growers to establish that same reputation for cannabis.

I think Massachusetts has actually done a fairly good job. It’s not small growers, but they’ve got some really, really excellent kind of larger-scale in-state operators. So I think there are some states in the Northeast that are doing things right, but it’s such early days.

Green Market Report:

So looking ahead, what do you feel is behind this end-of-year recovery that is being predicted by Hawthorne, and by the other companies that are all kind of saying the same thing?

Chris Hagedorn, Hawthorne:

It’s based on a few things and I hope I continue to tell myself it’s not just based on a sort of desperation, that I need to be true. It’s based on logic and research that, the oversupply because people shut those grows off, that oversupply is only the last so long. We use the beer, the wine analogies a lot. They’re always good in this case. It’s a perishable product and eventually, those kind of backlogs are going to either have to be destroyed. They’ll be sold through, they’ll be converted into concentrates and sold through and eventually, people are going to have to turn their farms on.

So we’re looking at that. We look at just sort of seasonal upticks that we’ve seen on our business historically. You can look at the SMG results to understand even that has been slowed down just by the climate. The weather has just not turned in the way that has implications for our outdoor and even to an extent our greenhouse customers as well. So it’s looking at the oversupply, it’s continuing to talk to retailers, talk to cultivators and just try to keep to the extent that there is a pulse on this industry, kind of one pulse that can tell us how things are. We try to keep our finger on it.

I think we’ve got as much information as anybody in space. The reality is, and this is something I know certainly our analysts and our investors don’t want here. But the reality is that real hard data in this industry is hard to come by. A lot of it’s you mash together anecdote and inference and sort of educated guesses and that’s kind of what we have to operate off of. It’s uncomfortable to operate at this scale and with this much at stake, but that’s kind of where we’re at.

Green Market Report:

As far as actual technology in indoor growing, what would you say is really the next big thing? I’ve heard stuff around like timing, the lights and the grows so that they replicate natural sunrise, sunset things like that. I don’t know if that’s just goofy stuff or is that a thing or really what do you see looking ahead is going to be the next big thing or the hottest?

Chris Hagedorn, Hawthorne:

Yeah, I think we’re going to in continue to see sort of a mass migration away from older style lighting, older kind of high-pressure sodium and ceramic metal lighting to LED. The progression toward LEDs are going to continue and we’ve got a bunch of new LED products in our pipeline that continues to kind of refine and iterate on the technology that we’ve launched. So LEDs are going to continue to be a monster and kind of take over the industry and the stuff that you’re talking about, whether it’s lights that turn on and off and sort of dim themselves on and off. You read about those in Brookstone, those alarm clocks that sort of wake you up, like the sun, plants are not dissimilar in that they like to be woken up kind of gradually as well. So lights that have sunrise, and sunset. 

Now we’re also looking at the spectrum that the sun’s thrown off at sunrise when the sun comes up is very different than the spectrum when the sun’s setting or at noon. So lights that where the spectrum shifts throughout the day to mimic what the plants are used to over the course of millions of years of grown in nature. So we’re looking at all those things. I would say at a larger scale, what I’m really excited about and it doesn’t exist in a way that I think it needs to, is just full facility kind of control and sensor packages that really knit things together. I think it’s something without tooting our own horn here too much that we’re kind of uniquely able to provide just because we take such a broad cut at the industry between lights and dehumidification and HVAC and nutrients and everything kind of, we look at the whole picture.

Once you can begin to introduce AI, machine learning to really kind of use data at scale, and there’s a few companies that are starting to do it, but again, they’re doing it in one specific kind of segment of the industry. There’s no one who’s got the breadth to do it all. I think except for us and it’s on us to actually pull that technology together and we’re working on it, but it’s a big undertaking and for us it’s our roots are in bags of dirt and seed and plants.

This is our most ambitious one yet, but I think it’s where the most opportunity is because this is when you start to say, “Hey, we could maybe pull 30, 40% of the energy costs out of these facilities between all the different technologies.” 

Green Market Report:

Do you think that has a lot to do with the fact that you guys have invested a ton into R and D like that’s to your point, some of these smaller companies they’re selling the lights, they’re selling the software package they’re selling, oh, we’ve got these lights that work with these tables. But I haven’t really come across that many companies that have taken some of that money that they’ve made and then turned around and put it into R and D to learn.

Chris Hagedorn, Hawthorne:

We have invested heavily in it. That’s part of the corporate DNA and something I’m really proud of our parent company. And when I say our parent company, it has kind of multiple meanings for me because it’s my grandfather and my old man who really drove that business and continued to, that’s a company that’s always invested pretty heavily in R and D. So getting to grow up both sort of from a literal perspective and in a professional sense around a business, that placed a really high premium, the ability to innovate and understand our products and the plants that our products are used on and what our consumers are looking for. That was always kind of in our DNA.

Which I’m super grateful for and we’ve taken the time. Whether it’s the investment up in British Columbia to build out a cannabis-specific facility or to convert former Scott’s Miracle-Gro kind of turf grass research centers in Oregon to growing hemp so that we can understand because, hemp as a proxy crop for cannabis is about as good as it gets short of optimal cannabis, which we to do in Canada. So yeah, we take it seriously and we’ve been able to draft off the fact that SMG before Hawthorne even existed already had a really deep and experienced R and D capability and team. So we were able to build out our own capabilities for the stuff that’s unique to Hawthorne, that technological stuff that Scott’s never did. Then for all of our nutrients and growing medias, we can depend on the capability that already existed at Scott’s.


StaffMay 20, 2022
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3min3960

The New York Cannabis Control Board announced on Thursday that an additional 58 farmers for adult-use cannabis have been approved. This brings the total of approved farmers to 146. The NYCCB initially approved 52 farmers in April and then gave the green light to another 36 at the May 5 meeting. People hoping to get these licenses were able to begin applying on March 15 and the opportunity will end on June 30. The NYCCB says it has gotten over 200 applications and the 50 remain to be processed and reviewed.

The board continues to suggest that adult-use stores could be opened as soon as the end of the year, but many believe that goal is too ambitious and the reality is that stores will actually open in 2023. Many regulations have yet to even be written and illegal operations are flourishing within the city. There are numerous pop-up shops and mobile cannabis operations that seem to operate with impunity. Technically, these operations are illegal because without the rules having been written, there is no law to actually enforce.

Social Equity Fund

In addition to approving farmers, the latest NYCCB meeting addressed the social equity fund called the Seeding Opportunity Initiative. While many originally thought this fund would be in grant form, it is really just a loan program. The $200 million fund was approved by the state Legislature and is being administered in partnership with the Dormitory Authority of the State of New York, a public benefit corporation that helps build out not-for-profit entities in the state. The Dormitory Authority told the board it is looking for an investment manager to oversee the Initiative as well as a person to take on oversight of the dispensary building.

CCB member Reuben McDaniel III said, “We will be building a significant number of these facilities over a 12-month period of time. So our goal is to get between eight and 10 design-build firms throughout the state of New York.” He noted that responses for the fund manager role are due on June 8, and for the design-build roles on June 13.

Information Sessions

The group also noted that it continues to provide educational sessions. On May 24, there is one titled “How to support cannabis cultivation in NYS” and another on May 25 titled “How to ensure equity in the NYS cannabis economy?”

 


StaffMay 17, 2022
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2min3300

Women’s Leadership Award

Cultivation

Joyce Cenali

COO Sonoma Hills Farm

 

Joyce Cenali is COO of Sonoma Hills Farm, a premium craft cannabis farm and organic culinary garden nestled on 60-acres in Sonoma Valley. In addition to Sun+Earth certification, the farm’s cannabis was one of the first to be recognized as “organic comparable,” as designated by CCOF’s OCal program, which certifies consistency with the uniform standards of the National Organic Program. The farm bridges Sonoma county’s rich agricultural history with a farm-to-table cannabis lifestyle.

Joyce has worked day in and day out to assist other entrepreneurs, many of which are minorities, in cannabis. She is an advisor for various female founders of early-stage companies that are innovating in cannabis with a mission to advance a modern regulatory model that unites capitalism with inclusion A long time craft cannabis cultivator, she co-founded an Emerald Cup winning operation and began angel investing in various women-founded early-stage cannabis start-ups including Sava. She is a board advisor with Access & Innovation whose mission is to advance a modern regulatory model that unites capitalism with inclusion, and former co-chair for the Sonoma County chapter of Women Grow, which serves as a catalyst for women to influence and succeed in the cannabis industry as the end of marijuana prohibition occurs on a national scale. 

She’s an avid supporter and investor in LADY BUDS, an indie film that features women in cannabis. She also leads operations at Big Rock Partners, a strategic advisory firm serving investors and companies at the intersection of food, hospitality, and cannabis.


StaffMay 10, 2022
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3min43000

Urban-gro (Nasdaq: UGRO) reported first-quarter financial results with revenue rising to $21.1 million versus $12.0 million in the prior-year period, representing an increase of $9.1 million, or 76%. This beat the Yahoo Finance average analyst estimate for revenue of $19 million.

Urban-gro attributed the growth to an increase in the specification, procurement, and integration of cultivation equipment tied to the growth of new and existing project contracts, as well as $3.4 million of incremental services revenue from acquisitions. Organic revenue growth was 48%, excluding the contribution from the 2WR+ acquisition.

The net loss was $(0.7) million, or $(0.07) per share, in the first quarter of 2022, as compared to a net loss of $(1.6) million, or a net loss per share of $(0.20), in the prior year period, representing an improvement of $0.9 million, or $0.13 per share. However, the earnings did miss the estimate for $(0.05).

Bradley Nattrass, Chairman, and CEO, said, “We are off to a strong start in 2022, reflected by our record first-quarter results, which continues to demonstrate our ability to drive unparalleled value for our clients through our full suite of in-house service offerings. We grew our revenue 75% on a year-over-year basis and continued to deliver positive Adjusted EBITDA while simultaneously making key investments that are geared toward driving long-term growth and enhancing shareholder value.”

Looking Ahead

As of March 31, 2022, the total backlog was $22 million, comprised of an equipment backlog of $16 million and a services backlog of $6 million. Urban-gro affirmed its 2022 revenue guidance of greater than $110 million and Adjusted EBITDA guidance of greater than $5.0 million, including partial year contribution from the acquisition of Emerald C.M. Inc.

Mr. Nattrass added, “I am very excited about the addition of construction management services to our platform following the Emerald C.M. acquisition. This completes our vision to create a turnkey design-build company with a full suite of capabilities and the requisite depth in indoor CEA expertise to drive value for our clients throughout the project lifecycle. Furthermore, while Emerald C.M. bolsters our project pipeline, our robust set of capabilities creates opportunities for diversification both in terms of revenue streams and industries beyond CEA. urban-gro is a formidable force with a focused strategy to deliver our value-added design, engineering, procurement, and construction management services through offering a bespoke design-build client solutions with a single point of responsibility.”


Debra BorchardtMarch 29, 2022
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5min2210

Urban-gro, Inc. (Nasdaq: UGRO) reported its fourth-quarter and full-year financial results, plus the company provided full-year 2022 guidance. Revenue was $19.0 million in the fourth quarter of 2021 versus $9.2 million in the prior-year period, representing an increase of $9.7 million, or 106%. It beat the analyst estimate for revenue of $18.8 million by Yahoo Finance. Urban-gro attributed the increase to a jump in cultivation equipment sales tied to an expansion in client base and incremental services revenue from acquisitions of $2.7 million.

The company reported a net loss of ($0.6) million, or ($0.06) per share, in the fourth quarter of 2021 versus a net loss of ($1.1) million, or a net loss per share of ($0.24), in the prior-year period, representing an increase of $0.5 million, or $0.18 per share. It missed the analyst estimate for a net loss of ($0.04) cents per share. The adjusted EBITDA was $0.5 million in the fourth quarter of 2021, compared to $0.2 million in the prior-year period. The increase in Adjusted EBITDA was driven by growth in revenues and gross profit, including the contribution from the acquisition of 2WR, and partially offset by increased operating expenses which include the Company’s ongoing investment to support its European expansion.

Full Year Results

Revenue was $62.1 million for the 2021 full year compared to $25.8 million in the prior year, representing an increase of $36.3 million, or 140%. this also topped the company’s own guidance for the year. The net loss was ($0.9) million, or $0.09 per share, for the 2021 full year compared to a net loss of ($5.1) million, or ($1.06) per share, in the prior year, representing an increase of $4.2 million, or $0.97 per share. The increase in net income was driven by properly capitalizing the company so management could effectively execute the strategic plan which is built on a high-margin services platform, which smoothly converts to the design, procurement, integration, and commissioning of equipment systems.

“I am thrilled about our strong fourth-quarter results, which capped off a record full-year performance for urban-gro,” said Bradley Nattrass, Chairman, and CEO. “In 2021, we more than doubled the company from a revenue perspective, achieved positive Adjusted EBITDA, built our backlog to record levels, and expanded our integrated service model with the strategic acquisition of the architect firm, 2WR. Building upon that momentum entering 2022, earlier this month we announced the pending acquisition of Emerald Construction, which adds an accretive and highly complementary CEA-experienced construction management services solution to our offering and further optimizes our in-house capabilities to provide complete design-built facilities to our clients. With these additional capabilities, we are in an ideal position to accelerate our momentum in the global CEA industry while simultaneously enhancing shareholder value.”

2022 Outlook

Urban-Gro gave full year revenue guidance for 2022 of at least $110 million, including urban-gro’s base revenue as well as revenue for partial year contribution from our pending Emerald acquisition. The 2022 full-year Adjusted EBITDA guidance of greater than $5 million, which includes a partial year contribution from the expected Emerald acquisition.

On March 14, 2022, the company announced the acquisition of Emerald Construction Management, Inc.  The acquisition further extends urban-gro’s services into early-stage conceptual design and planning, and it creates the industry’s first fully-integrated architecture-led design-build offering targeting the cannabis and food-focused CEA sectors. The company expects the transaction to be accretive to earnings within the first year and drive significant waterfall revenue opportunities for urban-gro’s existing suite of products and services.

Mr. Nattrass added, “I’m very excited to see what lies ahead for urban-gro. Our strong balance sheet and positive cash flow gives us the flexibility to diversify our revenue streams and pursue profitable growth opportunities. Furthermore, our differentiated set of capabilities puts us in an optimal position to generate opportunities across all geographies, crops, and equipment types and cement our footprint in the burgeoning $17 billion global vertical farming market.”


StaffMarch 22, 2022
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3min2800

The Westchester Business Journal reported that the planning board in the Town of Wawarsing in Ulster County has approved plans for Valley Agriceuticals LLC, whose parent company is Cresco Labs (OTC: CRLBF), to build 380,000-square-foot marijuana cultivation, manufacturing and distribution facility. The Business Journal said it was advised that passage of the approval resolution means that the developer can move forward with building the project. Once completed, the facility could end up employing over 300 people and Cresco has said it could be a $50 million investment for them.

In 2019, Cresco Labs Inc.(CSE: CL) (OTCQX: CRLBF) closed its acquisition of Gloucester Street Capital, LLC, the parent entity of Valley Agriceuticals, LLC via a merger between Gloucester and a subsidiary of Cresco Labs. As a result of that acquisition, Cresco Labs holds one of the 10 vertically integrated cannabis business licenses granted in the State of New York by the New York State Department of Health. Each license gives the operator the right to operate one cultivation facility and four dispensaries in New York. New York has legalized adult-use cannabis sales, but the program has not yet gotten underway.

According to the report, the facility will be built on a site covering 90.7 acres with 84.1 acres within the Town of Wawarsing and 6.6 acres in the Village of Ellenville. The site formerly was used as a manufacturing facility by the Schrade Knife company and Avnet Channel Master electronic components. Several cities in the country have given the green light to adult-use cannabis sales once the program is underway. They include Ellenville, Kingston, Lloyd, New Paltz, Rochester, Tuxedo, the town of Ulster, and the town of Warwick.

The article stated that the company says it intends to grow marijuana plants, produce marijuana products, and distribute those products from the facility. Cresco has 50 operational retail locations, 28 cultivation, and production facilities, and wholesales to over 1,000 dispensaries. The company had originally planned a large facility in the town Walkill in Orange County, but has changed its plans. The article also said that the facility would use about 98,000 gallons of water a day and its plans call for modifying two existing municipal lines to supply the plant’s water needs.

 


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