More than a decade ago, Scotts Miracle-Gro (SMG) CEO Jim Hagedorn made a big bet by launching a cannabis-focused business called Hawthorne Gardening in order to grow beyond lawn and garden products. Interestingly, he created the new venture without attaching the Scotts name to avoid concerns from investors and customers who were wary of marijuana. The idea was to tap into the fast-growing cannabis industry while protecting the company’s traditional image. However, the company is now looking to exit, according to the Wall Street Journal.
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It is worth noting that at first, the move worked. As more U.S. states legalized cannabis, Hawthorne expanded quickly by buying up companies and becoming the leading supplier of hydroponics and cultivation gear. Scotts invested nearly $2 billion in the venture, and its stock hit a pandemic-era high of over $250 in 2021. However, the cannabis market soon ran into trouble, as overproduction caused prices to fall sharply, and Hawthorne’s sales dropped.
Things then got worse due to federal rules that still classify cannabis as illegal. Indeed, this prevents companies from claiming normal tax deductions, thereby squeezing already thin profit margins. As a result, many cannabis businesses struggled or failed, and the black market began to grow again. With no relief in sight, Scotts has started pulling back by transferring its Hawthorne Collective investment arm and exploring a sale of Hawthorne Gardening. Interestingly, though, it is leaving the door open for a possible return if federal legalization ever arrives.
Is SMG Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SMG stock based on five Buys, two Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SMG price target of $71.60 per share implies 16.1% upside potential.
