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Hydrofarm CEO on company outlook as shares soar in public debut

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Hydrofarm shares are soaring after the company's public debut. Hydrofarm CEO Bill Toler joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: A spotlight in shares in Hydrofarm holdings there, jumping about 115% in their debut after pricing shares at $20 in the IPO. The Petaluma, California-based hydroponics company here raising more than $150 million by offering 8.7 million shares at $20 a share, clearly now trading higher than that here.

I want to bring on our next guest to talk more about this. The CEO of Hydrofarm, Bill Toler, joins us now. Bill, congratulations on the listing here, to go public on the NASDAQ. Not a lot of cannabis companies can say that.

Of course, you guys aren't a direct cannabis company here. You're providing the hydroponics to a lot of these operations. And growth seems to be pretty significant here. So talk to me about what you've seen so far and what you expect moving forward.

BILL TOLER: Yeah. Thanks, Zack. It's great to be with you. Look, we're at the intersection of two sort of secular changes in our culture and in our world. And that's the expansion of legalization of cannabis and the development of vertical farming, or as we call it, controlled environment agriculture. Both of those are huge growth markets and great opportunities for us to supply our business.

As you say, we don't touch the plant. We don't grow anything. We sell the equipment, the supplies, the nutrients, the grow media, the lighting-- all the products that go into helping growers grow and helping our retailers sell to these hobbyists and growers around the country.

AKIKO FUJITA: Bill, I am curious about the timing of this. On a day when we're talking about the IPO of a company that's been around for just over 10 years, you've been around for decades. Why did you think this was the right timing? And what's the growth opportunity you see here?

BILL TOLER: Yeah, the growth opportunity is really founded in the category, the category being the expansion of the hydroponic growing systems for both cannabis and non-cannabis type products. But this was a perfect timing for us, because I've been here about 18 months. I brought in the CFO from a public company back in February. We've been preparing for this.

But really, the company has been preparing to take this industry from essentially a cottage industry now into the mainstream. And we think that the reason you're seeing the kind of bounce in the stock right now is that our investor group, which is a very large and broad investor group-- our demand was incredible-- sees the long-term opportunity here.

Our company has been growing at 17% compounded for over the last 15 years. And we see that as kind of a base case going forward. So we've got growth. We've got legislative agenda working for us.

We've got a sea change in our culture. 2/3 of consumers think that marijuana should be legal today. Everything is really kind of pointing towards being a growth business and a growth category for a number of years to come.

ZACK GUZMAN: Yeah. I mean, you're not the only one in the space. Of course, Grow Generation, another competitor there in the hydroponic space. And those shares are up more than 600% on the year. Your guys' growth rate is a little bit smaller, even though you have a larger revenues there. Talk to me about the opportunity in the space and what separates your guys' company from maybe some of the other options out there on the market right now.

BILL TOLER: Yeah, Grow Generation is actually a customer of ours, a very large customer of ours. And we work incredibly well with them. We do overlap a little bit in certain channels.

But overall, they're much more of a customer than they are a competitor. So we kind of think of it as, they're the retail stores that we sell to. [INAUDIBLE] resell to these growers. So that's really part of that.

You know, we're really kind of in a unique position where we are. We have one major competitor that's part of another larger company. But we like where we stand.

We're an independent business. We are people that really invented this industry. We've got 40 years of history. Our founder, Peter Wartenberg, still works for the company, working in product development now. We've got senior sales and marketing executives that have been around for decades in this business. And it really gives us that unique customer intimacy that you need in an industry like ours.

AKIKO FUJITA: Bill, you talked about the growth expectations. I think I heard you say 17%. When you look ahead, this opportunity, how much of that is contingent on legalization on a federal level? And you know, how big of a catalyst is that likely to be?

BILL TOLER: Yeah, federal legalization would be helpful in many ways. But we like the current plan of rolling it out sort of state-by-state, and each state deciding how they choose to implement it. We think the most significant development here lately, of course, is New Jersey passing adult use. And New Jersey being 9 million people there, and Pennsylvania and New York right next door, it's very likely, in our opinion, that those states are going to follow pretty quickly.

All states are in need of new tax revenue after COVID and other things going on, and putting pressure on their budgets. So we think that public opinion and the need for tax revenues are going to drive this and accelerate legislative agenda that will continue to add to our growth rates.

AKIKO FUJITA: Bill Toler, the CEO of Hydrofarm, it's good to talk to you today. And congratulations again on the listing.

BILL TOLER: Thank you so much. We appreciate it.