Hydrofarm Archives - Green Market Report

Debra BorchardtDebra BorchardtDecember 2, 2020
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6min8234

 The independent branded hydroponics company with a comprehensive distribution platform, Hydrofarm Holdings Group, Inc. said it was launching an initial public offering of 8,666,667 shares of its common stock. The initial public offering price is expected to be priced between $14.00 and $16.00 per share. Hydrofarm said it expects to grant the underwriters a 30-day option to purchase up to an additional 1,300,000 shares of its common stock. Hydrofarm has applied to list its shares of common stock on the Nasdaq Global Market under the symbol “HYFM.” The company is hoping to raise $118 million, but the over-allotment option could bring that to $136 million.

Hydrofarm is not a newcomer to indoor growing, but it has targeted the cannabis industry as an area for expansion. The company had net sales for nine months in 2020 of $254 million. The net income was $2.1 million for that same time period. The proceeds are to be used for repaying existing indebtedness, for acquisitions, for working capital, and other general corporate purposes. The company has $113 million in total long-term debt.

Cannabis Restrictions

Despite the company’s desire to work with cannabis it also faces restrictions due to the company’s loans. According to the company’s prospectus, it states, “The Term Loan Agreement prohibits the Subsidiary Obligors from selling our products directly to cannabis growers or cultivators, or to sellers or retailers that sell only to the cannabis industry. The Encina Credit Facility prohibits the Subsidiary Obligors from selling our products to the cannabis industry. As a result, the Subsidiary Obligors do not sell our products directly to the cannabis industry, cannabis growers or cultivators, or to sellers or retailers that sell only to the cannabis industry. We are in compliance with the terms set forth by the Term Loan Agreement and the Encina Credit Facility and maintain policies and procedures that are designed to promote and achieve continued compliance with these requirements.” The company said it sells its products through third-party retailers and resellers which do not exclusively sell to the cannabis industry.

Reputation Risk?

Hydrofarm seems like it is preparing the company for cannabis to become legal and then be able to freely work with the industry, but in the meantime, it is clearly trying to distance itself from its customer base. The filing noted, “Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Cannabis has often been associated with various other narcotics, violence, and criminal activities, the risk of which is that our retailers and resellers that transact with cannabis businesses might attract negative publicity. There is also a risk that the action(s) of other participants, companies, and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation.”

“Today, we believe that a majority of the CEA equipment and supplies we sell to our customers is ultimately purchased by participants in the cannabis industry, though we do not sell to participants in the cannabis industry directly.”

Former Hostess Brands CEO

Mr. Toler has served as our Chief Executive Officer and Chairman of our board of directors since January 1, 2019. Prior to joining Hydrofarm in 2019, Mr. Toler was the Chief Executive Officer of Hostess Brands, Inc. (Nasdaq: TWNK), a food and beverage company, from May 2014 to March 2018. Under his leadership, Hostess successfully re-established the iconic Hostess brand as a leader within the sweet baked goods category, returned the company to profitability, and transitioned Hostess from a private to a public company. Mr. Toler has over 35 years of executive leadership experience in supply chain management and consumer packaged goods, including previously having served as Chief Executive Officer of AdvancePierre Foods, from September 2008 to August 2013, and President of Pinnacle Foods. He has also held executive roles at Campbell Soup Company, Nabisco, and Procter & Gamble. Mr. Toler served on the board of directors of Collier Creek Holdings from September 2018 to September 2020, Hostess Brands from May 2014 to March 2018, AdvancePierre Foods from 2008 to 2013 and Pinnacle Foods from 2007 to 2008. In addition, Mr. Toler has also served as a senior advisor at Oaktree Capital Management, an investment management firm, from September 2013 to April 2014. Mr. Toler holds a B.A. in Business Management and Economics from North Carolina State University. Mr. Toler was selected to serve as Chairman of our board of directors because of his 35 years of executive leadership experience in supply chain management and consumer packaged goods.


William SumnerWilliam SumnerNovember 1, 2018
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3min22142

Hydrofarm Holdings Group, an independent manufacturer and wholesaler of agricultural products and hydroponic equipment, announced that is has completed a $55 million equity financing round. In addition to strategic and institutional investors, the financing round including an investment from one of the largest private equity firms in the cannabis industry, Serruya Private Equity (SPE).

Annually, Hydrofarm brings in roughly $250 million in revenue, making the company significantly larger than many of the major players in the cannabis industry, such as MedMen ($39.8 million) or Aurora Cannabis (CAD$18 million). The company plans to use the financing to help fund growth opportunities in the global cannabis market; which includes mergers and acquisitions, expanding its distribution capability, and growing its product offerings and service capabilities.

“We are very excited about the significant growth opportunity in the broader global cannabis end market,” said SPE Managing Director, Michael Serruya. “Hydrofarm represents a unique opportunity to help the industry grow by creating a one-stop shop for all market participants to purchase hydroponics equipment and horticultural products, through its network of authorized resellers, for high quality, efficient cultivation.”

With more than four decades of experience in hydroponics and indoor gardening, Hydrofarm is poised to become a powerful force in the legal cannabis industry. As a manufacturer and distributor of hydroponic equipment and supplies, Hydrofarm has access to more than 1,500 hydroponic and gardening retailers across North America and touts over 5,000 product SKUs ranging from nutrients and lighting solutions.

“The strong investor response to this financing is a testament to Hydrofarm’s business strategy and position as one of the dominant players in the industry, as well as demand to participate in the growth of the global cannabis industry though an established, U.S. domiciled and federally-legal company,” said Adam Stern, CEO of SternAegis Ventures and Head of Private Equity Banking of Aegis Capital.



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