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Scotts Miracle-Gro’s Hawthorne seeks marijuana M&A deals


Scotts Miracle-Gro’s audacious $1.7 billion foray into the marijuana business over the past decade is a sensitive topic for the father-son team whose family helped build the lawn and garden giant.

Scotts CEO Jim Hagedorn told MJBizDaily the hundreds of layoffs and debt saddling the Ohio company’s cannabis subsidiary, Hawthorne Gardening Co., “almost took Scotts down.”

Now, Jim Hagedorn and son Chris, who is Hawthorne’s general manager, are mapping out a change in strategy for the cannabis cultivation supplies company.

The two hope to transform Hawthorne into a stand-alone marijuana juggernaut, and they’re ready to do some deal-making with potential partners, including other cannabis companies.

That’s a big change.

Chris could have sold Hawthorne to an interested buyer who approached the company’s chief operating officer at MJBizCon 2022 in Las Vegas.

“And my response was, ‘Just tell them to go f**k themselves. We’re not for sale,” Chris told MJBizDaily at this year’s conference in November.

“It was emotional, and it wasn’t the right decision … ”

CEO Jim Hagedorn has gone from selling traditional agricultural amendments to serving the cannabis industry through the Hawthorne Gardening Co. (Photo courtesy of Scotts Miracle-Gro)

“It wasn’t a ‘Whoops!’ – it’s how we felt at the time,” cut in Jim, whose father, Horace Hagedorn, “launched the original Miracle-Gro in 1951,” according to the company’s website.

These days, Jim often finishes his own son’s sentences – remarks that, more often than not, are peppered with expletives.

All the cursing is perhaps understandable: Over the past 18 months, Hawthorne has laid off roughly 1,000 employees.

Hawthorne’s sales tanked by 40% in the quarter ending July 1 – enough to drive overall sales down by 6% at Scotts.

The company sent about $200 million worth of unsold grow lights to the landfill because no one was buying them and Hawthorne didn’t have anywhere to store the inventory.

That’s after borrowing around $1.7 billion over the past decade to build Hawthorne, with headline-grabbing acquisitions of companies such as California-based General Hydroponics.

Money woes

“This correction almost took Scotts down,” Jim said.

“The entire company has suffered. We almost ran out of f**king money trying to do this shit s**t.”

So at this year’s MJBizCon, the Hagedorns and their executive team had a very different attitude toward interested parties, welcoming conversations with potential partners and hoping to relieve Scotts of the burdens of the cannabis industry, which is still awaiting catalysts such as federal marijuana reform.

But the Hagedorns aren’t looking for an exit.

Instead, Jim and Chris plan to saddle Scotts with the debt and find other struggling cannabis companies with what they say are unfairly low valuations to form a large company that could compete with big tobacco, alcohol or pharmaceutial companies that choose to enter the marijuana industry assuming the plant is legalized under federal law.

“We’re being f**king shunned by normal investors, right? That entire side of the world,” Chris said.

“If we’ll be left in the dark to our own devices, let’s build something really powerful. Because the storm will pass.

“Regulatory reform will happen eventually.”

The devil’s in the details

But it’s not the first time the Hagedorns have banked on legalization.

The Hagedorns concede that they, like many other companies, might have been too aggressive, spending too much under the assumption that federal reform would occur.

Thus far, they’ve protected the company’s New York Stock Exchange listing (SMG) by maintaining its ancillary, non-plant-touching status.

Its 2021 investment of $150 million in Toronto-based RIV Capital, which is a plant-touching entity with a business license in New York, was through a convertible note that would give Scotts a 42% stake in the company.

Image of Chris Hagedorn
Chris Hagedorn is general manager of the Hawthorne Gardening Co. (Photo courtesy of Scotts Miracle-Gro Co.)

Jim and Chris said they would similarly be interested in taking a noncontrolling portion of a new entity, which could be formed with a large multistate operator or a group of smaller companies.

They’re interested in talking with public and private companies, and they believe they have a lot to offer.

While MSOs have been too focused on growth, opening retail outlets and grow facilities, Hawthorne is concentrating on the science of cultivation practices – something they believe is invaluable to cannabis producers.

“When you look at what Hawthorne is, what we bring to the table, it’s an integrated play going from genetics to cultivation to generate the best potential quality at the lowest potential cost,” Matthew Garth, Scotts’ chief financial officer, told MJBizDaily.

Colin Ferrian, a portfolio manager at San Francisco-based Poseidon Investment Management, told MJBizDaily via email hat it can be difficult to sell an asset for fair value when prospective bidders know the seller wants to deconsolidate or engage in corporate restructuring.

The timing isn’t ideal either, he said.

Federal regulatory reform would boost markets, which would enhance Hawthorne’s value, he said.

“Any improvement in federal regulations will likely spur another capital cycle, where companies like Hawthorne would benefit meaningfully from new builds and expansions of cultivations,” Ferrian noted.

That said, Hawthorne could be an attractive asset to fellow indoor farming companies such as GrowGeneration Corp. and Hydrofarm Holdings Group, Ferrian said.

“The other discussed path, a partnership with a cannabis operator, would result in operational complexities, divergent risk profiles, dilution of brand value, and misaligned business models which are likely to outweigh any potential benefits, leading to a less favorable outcome for shareholders,” he said.

Living up to a legacy

Both Jim and Chris acknowledge that their shareholders might prefer that they just walk away from cannabis.

But they’re not giving up.

For one, they’re certain there’s still a massive opportunity in marijuana – they just made some timing and cost miscalculations.

Jim said the company’s home state of Ohio’s recent vote to legalize adult-use cannabis is a signal to federal legislators

“It’s a f**king Trump state,” he said, pointing to his baseball cap, embroidered with “Don’t Tread On Me” and a coiled snake.

“That’s going to pass a message to lawmakers to get moving. Because if Trump states are passing rec by 60%? It’s time.”

As for Chris, after spending $1.7 billion, he wants to redeem himself. There’s a long history of family businesses succeeding under the leadership of third generations.

After Chris’ grandfather Horace founded Miracle-Gro seven decades ago, his own father, Jim, helped to coordinate the merger with Scotts in 1995 to create today’s lawn and garden giant.

Initially, Chris said he was reluctant to join the family business for fear of hurting it.

Hawthorne did well at first.

“Now, it’s not going awesome,” Chris said.

“It’s like the prophecy is coming true. I’m really determined to not be another statistic.”

And Chris’ dad certainly has his back.

“I’m not burning it down,” Jim said.

“We’re going to turn it into something that’s even more important at a time of very high level of distress in the industry.”

Kate Robertson can be reached at kate.robertson@mjbizdaily.com.



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