Hagedorn claims cannabis is “significantly tougher than COVID.”
Tackling the challenges posed by the cannabis sector is more difficult than addressing those raised by COVID-19, at least in the opinion of the CEO of Scotts Miracle-Gro.
During Scotts (NYSE: SMG) most recent earnings call, CEO Jim Hagedorn expressed largely optimistic remarks about the cannabis industry while also providing a candid evaluation of its difficulties.
“Throughout the cannabis industry, there are people achieving great success,” Hagedorn stated. “They’re adopting innovative technologies, cutting-edge cultivation methods, and varied product lines. Many are established businesses. They’re manufacturing high-quality goods and obtaining prices per pound higher than a few years ago. They embody the core of the cannabis sector.”
The company recently organized a summit that gathered industry representatives to evaluate “the current state of the industry and its future direction,” as Hagedorn pointed out.
“What we discovered is that those at the top are seeking solutions and partners to support their growth and expansion,” he explained. “We possess the capacity to meet this demand. We’re aligned with the cost and quality benefits necessary to help them thrive.”
A crucial factor for that success, according to Hagedorn, is the lighting.
“Can you guess what they’re using? Our top-tier and most costly lights, alright? And they’re achieving the desired results with those lights, which are no laughing matter,” he remarked.
Cannabis Issues
However, not everything is perfect in the cannabis sector.
For starters, summit attendees determined that the industry must and will consolidate.
“A fierce shakeout is in progress, and we anticipate it will lead to the top 25% becoming even more dominant,” Hagedorn mentioned.
Consequently, Hawthorne is considering noncash transactions to enhance its scale and capabilities. “If we remain passive, we’ll fall behind,” he asserted.
Hagedorn attributed the sector’s difficulties mainly to two factors: excessive supply and regulatory uncertainty. He observed that:
- Bureaucracy and inadequate planning are generating an oversupply – but consolidation should help mitigate this issue.
- Lawmakers and regulators are contributing to market volatility by failing to implement federal-level reforms, such as the SAFE Banking Act or modifications to 280E, and state-level issues, exemplified by New York – which Hagedorn labeled “disgraceful.”
Chris Hagedorn, the general manager of Hawthorne, mentioned that the industry is finally experiencing some positive momentum.
“It might take another month or two to reach us, given our position in the industry’s value chain, but once those producers see a price recovery for their products, it will eventually impact us,” Chris Hagedorn stated.
The company also anticipates growth opportunities in the developing markets along the East Coast.
Hawthorne’s Response
Scotts is working to help Hawthorne reach a break-even point.
The company restructured its product offerings to the 58 brands that are most lucrative and relevant to industry players, creating the Hawthorne Signature Plus portfolio.
When asked about a previous plan to spin off Hawthorne, Jim Hagedorn said that was no longer being considered for the time being. He mentioned that Hawthorne would need to achieve over $1 billion in revenue and around $100 million in net income to be a sustainable market leader.
“Reflecting on my almost three decades at Scotts Miracle-Gro, this has undoubtedly been the most challenging period I’ve encountered,” Jim Hagedorn declared. “From a challenge and hardship standpoint, it was considerably tougher than COVID.”
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