Scotts Miracle-Gro, the largest lawn care company in North America, has shifted their focus to greener pastures. The company has been making marijuana money moves since their subsidiary, Hawthorne Gardening Company, purchased General Hydroponics and Vermicrop Organics in 2015. After the acquisition, the Hawthorne Gardening Company saw a higher revenue growth rate than any other part of Scotts.
Since then, the gardening company has spent hundreds of millions on other acquisitions that will vastly increase their exposure to the cultivators operating specifically in the cannabis industry. The company’s old and pending acquisitions prompted an analyst at SunTrust Robinson Humphrey to upgrade Scotts Miracle-Gro stock (NYSE: SMG) from Hold status to Buy.
Why The Upgrade?
What motivated SunTrust Robinson Humphrey to upgrade the SMG stock from hold to buy?
Last month, Scotts Miracle-Gro announced their plan to acquire Sunlight Supply Inc., one of the largest hydroponic distributors in the U.S, for $450 million. William Chappell, the analyst at SunTrust Robinson Humphrey claims the acquisition will double the size of the company’s cannabis-related sales.
In fact, he believes the acquisition “gives SMG immediate impact on the category” adding that for investors, “there is a dearth of ways to play the legalization trend in the public equity markets and SMG is one of the largest companies in terms of market cap with a firm root in the door of the industry.”
Chappell adjusted his expectation on the future price of the stock from $80 to $100, encouraging investors to buy rather than holding or selling.
“We believe investors increasingly view the name as a call option on the cannabis legalization trend which should provide a rising floor for the stock,” Chappell wrote. “As this business faces easier comparisons in F1Q19 and returns to growth, we also expect investors to jump back on this vehicle for riding the legalization wave.”
Ancillary businesses like Scotts benefit from legalization without assuming the risks involved with the plant-touching side of the industry. As a result, meticulous investors may find them more appealing than large cultivators who have more costs, regulations and geographical limitations to deal with. Now, analysts are predicting the NYSE: SMG stock will rise.