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GrowGeneration (GRWG) on Acquisition Spree, Adds California Store

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GrowGeneration Corp. GRWG continues its acquisition spree with the buyout of Commercial Grow Supply, one of the largest hydroponic suppliers in Los Angeles County, CA with annual revenues of around $10 million. Following this acquisition, GrowGeneration currently boasts 22 locations in California — the world’s largest legal cannabis market.

This buyout marks the company’s 14th so far this year, thus taking its total number of stores to 60. It is worth mentioning that the company has increased the store count through store openings and acquisitions considerably from 39 stores at the end of 2020. In July 2021, it entered into an asset purchase agreement to acquire HGS Hydro, the nation's third largest chain of hydroponic garden centers. This transaction is expected to close before the end of fiscal year-end 2021 and will add seven stores. The company is thus well on track to meet its goal of having 70 locations by this year-end. GrowGeneration plans to take it up to 100 locations by 2023.

California is the considered the world’s largest marijuana market. The State’s Emerald Triangle — Humboldt County, Mendocino County and Trinity County — is the largest cannabis producing region in the country. The state’s large population, flourishing tourist industry, ingrained marijuana culture, premier products and a mature medical cannabis market have culminated in a thriving market. In 1996, California became the first state to allow for medical cannabis use. Subsequently in 2016, California voters approved cannabis for recreational use.

In 2020, $4.4 billion worth of cannabis products were sold at California retail stores, which was 50% higher than 2019. California solely accounted for 27% of legal sales in the United States, while sales in Colorado, Washington and Oregon cumulatively represented about 29%. The recreational cannabis market in California is projected to reach $5 billion by 2022. The total economic impact from the California cannabis industry is estimated to be around $10 billion. As more and more states across the country continue to legalize cannabis, GrowGeneration is growing its presence to capitalize on this demand.

This announcement comes on the heels of the announcement of acquisition of Washington-based Hoagtech Hydroponics, which is expected to take Grow Generation’s revenues from the Washington market to around $15 million. (Read more: GrowGeneration Expands in Washington With New Buyout)

The company’s core growth strategy is to expand the number of its retail garden centers throughout North America. It has been building online sales, with visitors to its website trending more than 150,000 per month. The company’s continued focus on rapid, strategic growth in key markets both organically and through acquisitions, have been aiding revenues and will continue to do so in the near future. GrowGeneration has been firing on all fronts — online, commercial and retail. The company generated $216 million of revenues in the first half of 2021, which was even higher than $193 million of revenues reported in 2020 full year. The company hiked revenue guidance for 2021 to $455-$475 million from the previously targeted range of $450 million to $470 million as it continues to expand operations and broaden its customer base. The mid-point of the new guidance range indicates a surge of 141%. Private label expansion is strategic priority for GrowGeneration, and a key component of its long-term revenue generation plan.

Share Price Performance

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Over the past year, GrowGeneration has soared 117.5% compared with the industry’s rally of 55.3%.

Zacks Rank & Stocks to Consider

GrowGeneration currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include Avient Corporation AVNT, Dow Inc. DOW and Nucor Corporation NUE. All of these stocks flaunt a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avient has a projected earnings growth rate of 75% for 2021. The company’s shares have soared 87% in the past year.

Dow has an estimated earnings growth rate of 261.6% for the current fiscal year. The company’s shares have gained roughly 39% in a year’s time.

Nucor has an expected earnings growth rate of 489% for the current year. Its shares have appreciated 170% in a year’s time.


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