BofA says buy Scotts Miracle-Gro as cannabis industry booms

Research firm Merrill Lynch upgraded Scotts Miracle-Gro (SMG) to Buy Thursday, arguing that the lawn and garden giant's bet on hydroponics gives it a leadership position in the burgeoning cannabis industry. MERRILL UPS MIRACLE-GRO ON CANNABIS EXPOSURE: Upgrading Scotts Miracle-Gro to Buy and raising his price target on the stock to $105 from $80, Bank of America Merrill Lynch analyst Christopher Carey argues that its investment in hydroponics has positioned the company as a leader in cannabis, a category which should see "significant secular growth for years to come" as marijuana perception and regulations soften. Carey estimates the legal marijuana userbase surged no less than 125% after the November elections, which saw California, Maine, Massachusetts and Nevada legalize recreational usage, and he now sees the base case for 2017 hydroponics growth "closer to 50%" as opposed to Scotts management's pre-election implied outlook of just 20%. Though he concedes that Scotts Miracle-Gro's core lawn and garden division comprises a significant 90% of sales and "lags" competitors, Carey sees the company's blended growth rate outpacing peers after factoring in hydroponics. Scarcity in the space also strengthens the stock's case, says the analyst, "with few public equities at similar levels of sales and market cap offering exposure to the theme of marijuana legalization." TRUMP AG NEGATIVE ON MARIJUANA: Merrill Lynch's bullish call follows President-elect Donald Trump's selection of staunch drug opponent Jeff Sessions as his proposed Attorney General. While Trump himself has given statements signaling leniency on the issue, Sessions appears clearly negative, stating at a Senate hearing in April that "we need grown-ups in charge in Washington to say marijuana is not the kind of thing that ought to be legalized." PRICE ACTION: Shares of Scotts Miracle-Gro are up 4.5% to $97.08 in afternoon trading.