Marijuana sales in the U.S. have soared in 2020 amid the coronavirus pandemic. Thirty-three states and Washington, D.C., have legalized medical marijuana, while 11 states and D.C. have legalized recreational use. Many consumers upped their buying of cannabis products amid lockdowns and quarantine measures, with states including California seeing record cannabis sales in June and July.
Given all this, the pot industry has garnered the attention of investors looking to get a piece of the pie. GrowGeneration (GRWG 4.88%) is an interesting choice in this space because it contributes to the cannabis industry but does not produce cannabis products. Instead, the company focuses on hydroponics and providing grow lights, nutrients, soil, grow tents, and other products needed for marijuana growth. While GrowGeneration is marijuana-focused, it doesn't have a marijuana segment.
Since the company does not produce cannabis, it may be a safer pick for investors concerned about legal or other issues. Here are three reasons why GrowGeneration is a great buy.
1. Strong financial position
GrowGeneration reported a stunning 153% year-over-year revenue increase, to $55 million, in the third quarter of 2020. Gross profit more than doubled to $14.6 million from $6.5 million in the same period last year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were $6.6 million, representing a 230% increase. It was the 11th quarter in a row with record revenue, and the company's e-commerce segment showed strength, with revenue there up 112% year over year.
GrowGeneration has already set revenue guidance for 2021, expecting $280 million to $300 million in sales and an adjusted EBITDA of $34 million to $36 million. Management has set a corporate goal of operating 50 stores in 15 states in 2021. This company does not seem likely to slow its expansion anytime soon.
2. A smart acquisition strategy
GrowGeneration has been rather acquisitive lately, with its most recent purchase being The GrowBiz, the country's third-largest hydroponic garden center, on Nov. 2. . The addition of The GrowBiz to the company's portfolio is expected to generate nearly $50 million in annual revenue. GrowGeneration CEO Darren Lampert noted that the GrowBiz acquisition would both add to his company's hydroponic operations and expand its roster of industry veterans in management.
The company also recently purchased Michigan-based gardening store Big Green Tomato (BGT), which management anticipates will generate more than $40 million in annual revenue. GrowGeneration now has six retail stores in Michigan -- in Taylor, Battle Creek, Livonia, Grand Rapids, West Lansing, and South Lansing -- and the company expects further growth in the state.
That's not all. On Oct. 12, the company acquired Phoenix-based Hydroponics Depot, Arizona's largest indoor and outdoor garden center. As its first retail operation in Arizona, this acquisition marks the 11th state in which GrowGeneration is operating. GrowGeneration COO Tony Sullivan called Arizona a "key market," adding that the company sees "tremendous potential [there] from both a medical and recreational standpoint."
3. A diversified portfolio
Apart from GrowGeneration's strong financial position and smart acquisition strategy, the company also has a diversified portfolio, providing a wide range of products including hydroponics, grow lights, nutrients, clones, grow tents, and even soil that helps with plant growth. Given all this, the company doesn't have to worry about pot being illegal -- and neither do its investors. That said, if and when cannabis is legalized fully in the U.S., GrowGeneration will see increased sales and revenue.
GrowGeneration has a bright future in the cannabis industry, and it's still experiencing significant growth. This one is a great pick for bullish investors' portfolios.