We haven’t stepped foot into the marijuana sector during the past couple of years, but a few are beginning to perk up and grow up (i.e., become more liquid), notes Mike Cintolo, editor of Cabot Growth Investor. Here, a reviews a cannabis idea on his list of "stocks of interest."
One of the more interesting ones is GrowGeneration (GRWG), which has a classic bullets/army story — whereas many firms are battling with each other to sell more and more weed, GrowGeneration benefits no matter who wins that war.
It operates the largest chain of hydroponic garden centers in the U.S. (28 locations in 10 states), selling specialized lighting, additives, nutrients, soil and more for cannabis growers big and small.
Encouragingly, 60% of sales are consumables, leading to an expanding stream of recurring revenue from current customers, while the firm is building a line of private label products (under the Sunleaves brand) to deliver lower prices and gain leverage on third-party sellers.
Growth has been fantastic as more states at least partially legalize weed and as the industry expands — sales rose 123% in Q2, while same-store sales boomed an incredible 49% and earnings leapt into the black.
And because GrowGeneration is a retail play (all of its products are completely legal, avoiding regulatory risk), there’s a cookie-cutter aspect to this as well.
The firm had 16 stores at the end of 2018, 25 at the end of last year, currently has 28 and has a goal of boosting that to 50 by the end of next year (part of that expansion should be through M&A).
Analysts see the top line rising nearly 50% next year, but that could prove very conservative depending on the environment.
As for the stock, it went vertical in August before dipping sharply, but it’s nudged its way up since then. It’s lower priced and volatile, but the next big move is likely up. Earnings are likely out in mid-November.
