ScottsMiracle-Gro Launches Cannabis Investment Entity with Huge Down Payment
Investing into the cannabis industry may have just become a bit easier, thanks to an unlikely player: ScottsMiracle-Gro (NYSE: SMG) announced in a press release today the launch of its newly formed subsidiary, The Hawthorne Collective, which will focus on strategic minority investments in areas of the cannabis industry that are not currently pursued by The Hawthorne Gardening Company—its hydroponic, lighting and nutrient supply arm focused on cannabis.
Further, The Hawthorne Collective will provide a $150 million convertible loan to Toronto, Ontario-based RIV Capital in Canada (TSX: RIV) (OTC: CNPOF), a cannabis investment and acquisition firm currently listed on the Toronto Stock Exchange.
Company representatives acknowledged the gauntlet that cannabis companies go through when doing any task that involves federally-insured banks, but said they believe regulations will change.
“The addition of The Hawthorne Collective into our portfolio allows us to explore and pursue new opportunities in an industry that is poised for significant growth in the years ahead,” said Jim Hagedorn, chairman and CEO of ScottsMiracle-Gro. “With full appreciation of current banking and legal requirements, The Collective is designed to allow us to eventually participate directly in a larger marketplace as the legal environment changes over time.”
RIV Capital indicated it would use the funds provided by The Hawthorne Collective for general corporate and other legal purposes, which could include additional investments and acquisitions.
Upon closing, RIV Capital will become The Hawthorne Collective’s preferred vehicle for future investments. The transaction is expected to close in the fourth quarter of 2021.
“By making a minority, non-equity investment in RIV Capital, this initial transaction will have little near-term impact on our financial performance,” Hagedorn said. “While this approach means we will employ capital that won’t be available for near-term investments with a more immediate return, we are confident our partners at RIV Capital and our long-term approach ultimately will drive meaningful value for our shareholders.”
Hagedorn acknowledged the money that the cannabis industry brings in, which they cannot ignore. He continued, “Indeed, the growth of The Hawthorne Gardening Company over the past six years has generated significant shareholder value. It also has allowed us to develop a rare level of expertise and insight regarding the cannabis space without being involved in the plant-touching aspects of the industry. That is why we are beginning to invest in other areas of the industry through The Collective while continuing to pursue near-in strategic acquisitions to fold into the existing Hawthorne Gardening business.”
Long before cannabis was outlawed in the U.S., Civil War veteran Orlando McLean Scott began selling lawn seed in 1868, and he and his family never really stopped—as the company eventually branched out into several other areas. Miracle-Gro was developed in 1951 and became a staple nutrient, usually for flowers and houseplants. Now, the brand can be found practically everywhere.
The company has definitely seen its share of criticism, which continued as it entered the cannabis industry. ScottsMiracle-Gro entered the pot business with their 2015 acquisition of General Hydroponics Inc. and Bio-Organic Solutions Inc., but the company was criticized for its involvement with Monsanto—the allegedly evil agrochemical and agricultural biotechnology corporation.
ScottsMiracle Gro addressed some of these concerns—notably concerns about Roundup—and even issued an announcement that it would cease production of products that contain glyphosate. For background, ScottsMiracle Gro has distributed but not owned Roundup since 1998.
Today the company boasts approximately $4.1 billion in sales, and is one of the world’s largest marketers of branded consumer products for lawn and garden care. ScottsMiracle-Gro’s wholly-owned subsidiary, The Hawthorne Gardening Company, is a leading provider of nutrients, lighting and other materials used for indoor and hydroponic growing geared for cannabis.