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GrowGeneration (GRWG) Could Grow at Annual Rate of 100%

GrowGeneration (GRWG) is a relatively unknown competitor in the cannabis sector, but as it continues to boost revenue and earnings on a consistent basis, it has started to attract the attention of investors. That should also be helped by its application to be listed on the Nasdaq.

The company has been able to grow both organically and via acquisitions, and with a solid pipeline in the last half of the year, has stated it believes it will be able to grow at an annual rate of 100 percent going forward.

What the company does

GrowGeneration Corp. is a major supplier of thousands of items to the cananbis sector, including to individuals, small growers, and giant multi-state operators.

It currently has 24 stores it sells through in nine states. It also sells through a growing online store, HeavyGardens.com. Ancillary businesses include greenhouse design and associated services, harvesting services, and consulting at the commercial level.

At this time the company is the largest of chain of its kind in the U.S., and focuses primarily on the organic and hydroponic segment of the cannabis industry.

Its stated goal is to have a presence in all the Canadian provinces and major U.S. markets.

Latest earnings

Revenue in the most recent reporting period was $19.5 million, up 172 percent from the $7.2 million posted last year in the same quarter.

The bulk of that came from 14 new stores that were added to the companies portfolio since April 1, 2018, along with an increase in sales from its online store.

On a same-store basis, sales jumped 23 percent year-over-year, with gross profit margins increasing 5.7 basis points to 29.9 percent. Management said the increase in margins was from “purchasing in larger volumes and buying more efficiently.”

Its e-commerce store HeavyGardens generated $1 million in the quarter, up 47 percent sequentially. The commercial unit added another $3.8 million in revenue, and increase of $2.5 million over the prior quarter.

While continuing to spend on growth, the company still managed to cut operating expenses by 13 percent and corporate overhead by 42 percent as a percentage of revenue.

At the end of the quarter GrowGeneration had $18 million in cash and cash equivalents, and working capital of $29.6 million, up from $21.6 million at the end of calendar year 2018.

The company boosted its revenue guidance for 2019 to reach $65.0 million to $70.0 million. Adjusted EBITDA for the year was guided to finish in a range of $0.14 to $0.18 per share.

Conclusion

With revenue expected to continue to increase and corporate overhead to remain “relatively flat,” management concluded net income will increase from quarter-over-quarter.

It also said it has new acquisition targets that are scheduled to close in the throughout the last half of the year. It’s also working with a national real estate company to find high-quality strategic locations within major U.S. cities it can expand to.

With a solid acquisition pipeline, effective cash management, strong balance sheet, and healthy organic growth, GrowGeneration Corp. is positioned to scale on a consistent pace in the quarters and years ahead, and appears it can do it while generating a profit.

For those reasons, I think the company could easily double if it continues to execute. This is especially probable when considering all the segments of the company are experiencing significant growth.

There have been very few cannabis companies that have been able to generate strong growth while being profitable. For that reason and those mentioned above, it’s definitely worth taking a closer look at GrowGeneration Corp. before it starts to run again.

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