recession Archives - Green Market Report

Adam JacksonAugust 3, 2022


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 BorchardtJuly 19, 2022


No one can predict a recession, but it seems likely that some sort of stress is expected on the economy. On a positive note, the big banks have all seemed to dial down the heat on recession fears. During the latest round of earnings here’s what some of them said:

  • “It’s a challenging market, but I think it is important to say that it’s not 2008 complicated,” James Gorman, Morgan Stanley’s chief executive, told analysts.
  • “Nothing in the data that I see signals that the U.S. is on the cusp of recession,” Jane Fraser, Citigroup’s chief executive, said on a conference call.
  • “We’ve looked a lot, very carefully, into our actual data,” Jeremy Barnum, JPMorgan’s chief financial officer, said on a call with reporters. “There is essentially no evidence of actual weakness.”

Yet, in cannabis, many still fear that the headwinds are there for some difficult times. Evan Eneman,  Founder of Sands Lane Holdings wrote that it would be wise to prepare for a significant slowdown. He thinks that cannabis stocks could be regarded as defensive in nature. Meaning they would perform better than other stocks that are negatively affected by a recession. 

Vice Stocks

Investors often point to vice stocks during recessionary times. Yet, alcohol stocks and tobacco stocks behave very differently in a recession. The last big recession was notably the 2008-2009 financial crisis and it was a doozy. The modern-day legal cannabis market wasn’t in existence at that time and so if a recession does occur, there is little history to draw upon. Thus it makes sense to look at alcohol and tobacco.


The Oxford Academic published a study of alcohol trends during the 2008 recession and found that during the Great Recession there was an increase in abstention from alcohol and a rise in frequent binging. The light drinkers scaled back, but the heavy drinkers ramped up. Less money after losing jobs caused some people to buy less alcohol. However, job insecurity and the threat of losing one’s savings or home caused lots of people to drink heavily. The study found, “These results are consistent with the existing literature, indicating that single men and the recently unemployed are most likely to drink excessively during economic crises (Luoto et al., 1998). Further, we note that the odds of frequent binging rose particularly among persons aged 25–34 and 55–59 years, age groups that are highly vulnerable to unemployment and job insecurity during recessionary periods.” That turns out to be one of the largest demographics of cannabis users. 


Moving on to look at tobacco, The National Library of Medicine published a study from the Oxford Journal on Nicotine and Tobacco Research that determined that parents in households that “became income poor” over the period of the “Great Recession” were significantly more likely to report “persistent tobacco use” or “new reported tobacco use.” The study found, “Ninety-five percent of “new reported tobacco users” had evidence of prior tobacco use suggesting the majority were “relapsed tobacco users.” Similar patterns were seen for those who “developed difficulty managing” and “felt worse off.” Even though these consumers had less money they were spending more money on cigarettes because it relieved the negative emotions resulting from stress exposure. The report wrote, “among a sample of lower socioeconomic mothers, who had previously given up smoking, were difficulty coping with everyday problems, stress, and financial pressures.”


Science then supports the idea that economic stress causes consumers to turn to relief in the form of alcohol and cigarettes. Enerman drilled down to see if these same factors will apply to the cannabis consumer and reviewed what could happen:

  • The Illegal Market – If cannabis consumers are stressed about money, will they could turn back to the illicit market since it’s cheaper than the legal market. This could affect the legal players if they see their consumer base go back to the local street dealer. 
  • Medical Vs. Adult Use – Enerman wrote, “The cannabis industry really is two distinct sectors: adult-use and medical, and the differences are profound. As stated in the Cannabis Private Investment Review, the adult-use market is broader and has long-term growth potential, but the medical market has a number of strong characteristics.” Many medical markets offer a cheaper option for cannabis, consumers could potentially shift back to being a patient to save money. Some states charge lower tax rates, so those medical cards might get dusted off and maybe new ones issued. 
  • Mature Support Sectors In Place – The MGO report said, “In a recession, certain sectors may decline, but the diverse array of companies representing the cannabis industry could produce a mixed bag of winners and losers, evening out the industry’s performance as a whole, or even floating poor-performing sectors.” Perhaps the value players will be the winners here, while those luxury craft cannabis producers may find fewer willing to pay extra. It could also be that companies that can offer a way to cut costs on production will succeed while those whose products are seen as ‘nice to have’ but not ‘need to have’ may be challenged.

A report from BDSA found that the cannabis market continues to grow. The report said, “In just a few short years, attitudes towards cannabis across the country have shifted rapidly, with the share of those who have “bought in” to cannabis consumption skyrocketing while fewer and fewer report not being open to consuming cannabis. In Spring 2022, BDSA Consumer Insights data show that 51% of Americans in adult-use states claim to have consumed cannabis in the past six months, up 15% from Spring 2020. At the same time, the share who claim to be rejecters (non-consumers who are not open to consuming in the future) fell from 31% in Spring 2020 to just 23% in Spring 2022.”

So with more cannabis consumers than ever before, if we enter a recession, they may choose cannabis over alcohol or tobacco. However, cost may be the deciding factor and that may shift consumption patterns.

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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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