Time to Invest? GrowGen’s 2018 revenue up 100% in 2018. Expects 100% gain again in 2019.

By April 5, 2019 No Comments

mana-amir-1375196-unsplashDenver, CO-based GrowGeneration Corp. (OTCQX: GRWG), one of the largest chains of specialty hydroponic and organic garden centers serving the commercial growing industry—including cannabis— today reported 2018 revenue grew 102% over 2017 revenue, to $29 million. It reported a net loss of $2.5 million for Q4, and a loss of $5 million for the year.

GrowGen owns and operates specialty retail hydroponic and organic gardening stores serving commercial and home growers. Currently, it has 21 stores, including 6 in California, 5 in Colorado, 3 in Michigan, 2 each in Nevada and Oklahoma, 1 in Washington, Rhode Island and Maine.

Most of its 2018 revenue gain came from buying or opening new stores, and buying its new e-commerce site, HeavyGardens.com. Existing same-store sales increased by 12%.

The company expects to report revenue up another roughly 100% in 2019, to $53-58 million. Of this roughly $25 million increase, about $10 million will be generated internally from new capital projects, with the rest coming from store acquisitions and some from same-store growth.

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GrowGen carries thousands of products, including organic nutrients and soils, lighting technology and hydroponic equipment for indoor and outdoor use by commercial and home growers.

Its mission is to own and operate GrowGeneration-branded stores in all major legalized cannabis states in the U.S. and Canada. It estimates roughly 1,000 hydroponic stores now in the U.S. By 2020, the market could reach $23 billion.

GrowGen now focuses on states that are issuing the newest cannabis licenses and opens or buys stores there to serve these new businesses. This provides its fastest revenue growth. It also serves existing cannabis stores that are re-stocking.

How did its stock react to the news?

GrowGen stock started the day at $3.25 and slipped 8% to roughly $3.00 on the news, indicating that investors expected slightly better revenue results or guidance. This could be because over half of GrowGens’ revenue growth is bought by acquiring stores, rather than generated internally.

In Q1 2019, it acquired three new stores and opened two, adding $14 million in revenue. It generated $2 million in capital projects in Q1. It is projecting $10 million in new capital projects revenue for the year.

GrowGen’s price to sales ratio is now 3.5, much lower than most of the cannabis industry, reflecting a moderate valuation. Of course, it is in a different part of the business than most other cannabis companies, so is not directly comparable.

GrowGen as an investment?

GrowGen’s revenue could grow substantially in the coming years as it continues to open or buy new stores that serve the expanding hydroponic market around the country, especially cannabis growing companies. This could initiate a rise in its stock price.

Several years out, as the rate of hydroponic cannabis business openings declines, GrowGen’s revenue growth rate will likely slow to a much more gradual rate.

For the near future, GrowGen’s revenue outlook looks bright. Darren Lampert, co-founder and CEO, said, “With our corporate foundation now in place, the company is well positioned to continue 100% year over year growth for several more years.” Investors should note, this is a forward-looking statement by management, meaning it is not guaranteed and could be overly optimistic.

GrowGen also reported having a gross margin of 25%, $14 million in cash, and 28 million shares outstanding, at the end of 2018.

2018 Financial Highlights:

  • Revenue of $29.0 million, up 102% over 2017 revenue
  • Acquired 8 stores, HeavyGardens.com and opened Oklahoma City, OK. location in 2018
  • Gross profit margin was 25% for 2018 compared to 24% for 2017
  • Store operating costs, as a percent of revenue, declined from 20% for 2017 to 18% for 2018
  • Overhead, salaries, general and administrative declined from 13% of revenue in 2017 to 11% in 2018
  • Same-store sales in the 4th quarter increased by 12.4%
  • $14.6 million in cash and cash equivalents on December 31, 2018
  • Working capital of $21.6 million at the end of 2018 compared to $5.6 million at the end of 2017
  • Raised $12.9 million in 2018 from equity, and $9.0 million from convertible debt
  • Implemented an ERP computer system, with deploying in CO, OK, and MA
  • Built a national management team to secure large capital commercial projects

2019 Highlights:

  • Q1 2019, acquired assets and trademarks from a large hydroponic distributor
  • Q1 2019, acquired 3 additional stores, in Denver, Palm Springs, CA and Reno, NV
  • Opened stores in Brewer, ME and Tulsa, OK

GrowGen’s has purchased product trademarks from competitors to increase its ability to supply branded products, such as trellis netting, plastic pots, and organic nutrients. This is expected to increase margins and profitability.

It also started GrowGen Canada and GrowGen Hemp Corp, demonstrating its growth into emerging markets. GrowGen continues its effort to up-list to a larger exchange.

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Source GrowGen press release

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