Scotts Miracle-Gro, the maker of home, lawn, and garden-care goods that traces its roots back to the 19th century, blamed disappointing quarterly earnings on the volatility of the cannabis market, on which it is increasingly dependent.
Since 2016, annual sales growth at subsidiary Hawthorne Gardening—which owns dozens of brands selling lights, filtration systems, premium soil, containers, air filters, and more specialized supplies for hydroponic operations—has outpaced the group’s general lawn and garden business. For the fourth quarter, the parent company reported overall sales of $298 million, up 35% from the same quarter a year before. The Hawthorne unit was up a whopping 84% over that period, largely thanks to its acquisition of Sunlight Supply, yet another name in hydroponics that represented a near-literal doubling down in the weed business for Scotts Miracle-Gro.
“There are a lot of Scotts people wearing Hawthorne shirts these days,” said CEO Jim Hagedorn, on a call with investors this week. That’s why, said Hagedorn, the company’s bottom line was hit hard by a slowdown in the California cannabis business, where sales were lower than expected following the state’s rocky first year of legal adult use.
Hagedorn has been betting big on weed since 2013. That’s when, according to a colorful 2016 profile in Forbes, Hagedorn wandered into a Washington state garden store, where a shopkeeper told him that “everyone called him an idiot when he first started selling hydroponics equipment, but the stuff was flying off the shelves, with an average receipt of $400—straight cash.”
“I told everyone ‘We’re doing it,’” Hagedorn said to Forbes. “‘If you don’t like it, leave. We’re doing it. It’s beyond stopping. And we’re not getting into pot growing. We’re talking dirt, fertilizer, pesticides, growing systems, lights. You know it’s a multibillion-dollar business, and we’ve got no growth in our core. Are you guys stupid?’”
Today, Hagedorn and company—including his son Chris, who runs Hawthorne Gardening—sound like they want to take the business well beyond hardware-store hobbyists, and into the age of Big Weed. On the call, Hagedorn noted that the next legal markets are likely to have “fewer growers but larger ones.”
When one analyst implied that Scotts’ general consumer business hadn’t served large-scale professional landscapers as well as it had individual consumers in the past, Hagedorn (who is notably sharp-tongued) bristled.
“Dude, I have a ton of respect for you,” he said. “But I think that’s total bullshit.”
“The greenhouse supply business, it’s a business we very much understand, and we’re the best in the world at,” said Hagedorn. “Hawthorne is going to be better than our [professional horticulture] business was at supplying a very unique specialized market, which is cannabis growers.”
That said, the younger Hagedorn acknowledged a few months ago that Hawthorne was still figuring out how to serve Big Weed.
“The difference has shifted more rapidly than I and my team expected toward these large-scale commercial cultivators and away from the smaller, midsize guys,” Chris Hagedorn told Marijuana Business Daily. “And those guys do have some different expectations. Maybe they’re buying from an ag distributor. They’re buying really cheap raw materials. They’re just buying bags of salt instead of premixed liquid nutrients. So, the market’s evolved. We’re responding with innovation, but it caught us a little off guard.”