Scotts Miracle-Gro / Hawthorne Goes All-In on Cannabis & the Business Model Looks Familiar
Whether you smoke weed or just want to eliminate them from your yard, you are probably familiar with the news making and potentially cancer-causing store-bought weed-killer Round-Up, and the shadowy company behind it, Monsanto.
One connection that you may not have made is that Monsanto is partnered with the popular and seemingly innocuous lawn & garden giant, Scott’s Miracle-Gro Co. They have pushed the retail version of Monsanto’s controversial weed-killer for decades in a lucrative and exclusive deal.
For years, the two companies have worked hand-in-hand in genetically modifying various types of grass and landscaping plants to be resistant to the poisons found in Monsanto’s weed-abatement products. Spray the poison on the bush, the weeds die, the bush doesn’t…the guy spraying eventually does but hey… profits, right?!
As cannabis reform and regulation continues to take root across the nation, Scott’s Miracle-Gro has gone all-in on marijuana, despite having completely ignored it for the decades prior, and now cannabis enthusiasts are concerned that GMO buds may be coming to a dispensary shelf near them sooner than later.
In 2016, Scott’s Miracle-Gro CEO Jim Hagedorn let Forbes Magazine in on his new plan, stating, “Invest, like, half a billion in the pot business. It is the biggest thing I've ever seen in lawn and garden.”
His initial estimate appears to have been a bit low as the company immediately invested well over $1 Billion in the high demand weed industry by way of purchasing some major players in the cannabis cultivation sector in a move the company dubbed “Project Focus”.
Their early cannabis-related acquisitions included:
General Hydroponics Inc., purchased for $120 Million, and Bio Organic Solutions Inc., purchased for $15 Million, two large producers of plant food and growing mediums for hydro setups
They paid $136.2 Million for a 75% stake in Holland-based indoor grow light manufacturer, Gavita. They eventually spent an additional $94 Million to buy out the remainder of Gavita and it’s debts
They laid out another $92.6 Million for Arizona-based nutrient and hydro grow system dealer Botanicare, then another $32 Million to become the exclusive manufacturer of the Botanicare line of products
$47.8 Million was dumped into AeroGrow International, giving Miracle-Gro an 80% stake in the company
They spent $72.2 Million to acquire Canadian company Can-Filters Group who made filtration systems for hydro grows
They rounded out their spending spree with a whopping $450 Million buyout of Sunlight Supply Inc., the nation’s largest supplier of indoor growing equipment
Hagedorn told investors in 2016 that the company’s traditional business model of lawn and garden care had plateaued and that if they expected to see more gains in their portfolios they needed to trust his hard turn toward cannabis. The time was right, he claimed, to “take advantage of something that’s high margin, high growth”.
How’s that working out so far?
It took years for Hagedorn’s plan to bear fruit, and this year the company’s horticulture-focused subsidiary – Hawthorne Gardening Co., led by Hagedorn’s son, Chris – beat its 2019 sales projections, but it fell far short on profits. Still, they are celebrating, and what we are witnessing on this ancillary side of the market is full of similarities to what we are seeing go down in the regulated California cannabis market.
“We’re beating the crap out of people,” Jim Hagedorn said in a conference call with investors earlier this week. “We’re taking market share.”
What he means is that because Hawthorne is backed by the biggest of Big Money, they are offering free samples and deep discounts all over the place to “win customers” but also to drown competitors. This is almost a mirror image of what we are seeing inside the regulated cannabis market in California, as deep-pocketed corporate cannabis carpetbaggers have manipulated the system to stack licenses, gain unfair priority, and create a further imbalance in market share. Companies like MedMen have gone all-in on the long game, hoping that your favorite legacy operators from the good ol’ days will starve, shrivel, and die.
Like Hawthorne, companies like MedMen are leaking money left and right trying to buy authenticity in a market fueled by it, but what works for weed-killers so far has not worked for weed-sellers and the biggest cannabis companies from northern Canada to southern California are feeling the pinch from a resounding lack of interest in their well-lit dispensaries full of overpriced mids.
But by outright acquisition or by lowballing financial siege tactics, Hawthorne appears to be right on track as they try to time their takeover with what seems like inevitable action by the federal government to relax our nation’s prohibition of cannabis.
Again, we get a glimpse of the future of “legal weed” in America with the passage of the 2018 Farm Bill which completely removed the “hemp” plant from the Controlled Substances Act (sort of…they kinda forgot about the whole CBD thing and are still trying to sort that out). Now Monsanto/Scotts/Hawthorne has its sights set on that emerging hemp industry. As usual, the senior Hagedorn didn’t mince his words when selling investors on this opportunity, saying in Wednesday’s call, “We are doing some incredible work on the hemp side to make sure we are not handing business over to the corn guys. We understand that market better than any farm boy does. We intend to compete aggressively there.”
Who does he think grows the hemp, besides the “farm boys”?
Like it or not, this dastardly conglomerate of ne’er-do-wells appears to have their finger firmly on the pulse of the cannabis movement and with decades of political influence under their belt, and money almost literally growing on trees, it is worth keeping a close eye on every move they make in 2020. They are far too heavily invested to not see “legalization” continue to spread, but is their version of it going to be just as toxic as their product line?