In this edition of "Rising High," The Fly conducted an exclusive interview with Michael Salaman, president and co-founder of GrowGeneration (GWRG), a chain of specialty hydroponic and organic garden centers. Here are some of the highlights:
HYDROPONICS: GrowGeneration is an owner and operator of specialty retail hydroponic and gardening stores with a mission to own and operate branded stores in all the major legalized cannabis states in the U.S. and Canada. The company currently has 21 locations and focuses on eight markets as well as a new e-commerce site. “What we do is we provide all of the supplies that a cultivator needs, whether they’re cultivating cannabis, hemp, avocados or tomatoes,” Salaman said. “They come to our company because we have a one-stop shopping solution for any type of grower and cultivator.” The co-founder said the company has been successful in broadening its inventory and providing a level of knowledge based sales to growers. “The grower who has questions and a lot of them do, even the larger growers, they rely on our ‘Grow Pros,’” he said. “They may have a pest control issue, they may want to try a new additive or a new lighting technology or they may be expanding their operation where they may need some design and layout assistance. Our company provides all those services.” He noted that the company has attracted large multi-state operators particularly within the last six months servicing companies including iAnthus, Tilt and Harvest. “We’re starting to really penetrate regionally then ultimately I believe we’ll have national relationships with a lot of the big MSOs,” he said. “There hasn’t been one national chain of operators that have put together an infrastructure and a supply chain. We’re really the first company that has put that national supply chain in place.”
EARNINGS: On Tuesday, GrowGen reported first quarter adjusted EBITDA of 2c per share on revenue of $13.7M, which was up almost 200% year-over-year. Same-store sales increased 42% year-over-year with margins up one basis point. The company also noted that Q2 revenue and net income are “trending significantly higher” than Q1 numbers. GrowGen also raised its 2019 revenue guidance to $60M-$65M from $52M-$58M and its adjusted EBITDA to 14c-18c per share from 12c-16c per share. “It was a transformational quarter in that the company turned a profit,” Salaman said. The co-founder added that guidance does not include any additional acquisitions GrowGen has planned for the quarter.
DIFFERENTIATION: The co-founder said he believes GrowGeneration separates itself from competitors through a mixture of selection, service and solutions. “What our company provides is the most robust selection of products,” Salaman said. “Growers come in all different shapes and sizes and they all have different ways of growing. We provide a very personalized approach from the product side.” The second piece to the company’s differentiation is service, he said. “We have 21 locations and we have invested in the grow community,” the co-founder said. “We have millions of dollars of inventory that’s sitting just in time so when growers need their soil or they need their nutrients, we’re right there.” Lastly, Salaman said GrowGen’s role as a solutions provider is a key differentiator adding grow professionals are really “the backbone” of the company, “We’re made up of over 150 employees,” he said. “Most of those employees are agronomists, horticulturists and agriculturists, that have studied the chemistry of a plant and truly understand how plants grow from a very high-level perspective. That provide us with, we think, a very unique differentiator against any of the other competitors out there.”
LEGALIZATION: When asked for prospects of legalization in the U.S., Salaman said he believes there is so much momentum in the U.S. and as the elections near, legalization will also become a political topic. “Whether you’re Democrat or Republican I think there’s so much benefit that the states are seeing with tax revenue, with jobs and real estate appreciation,” he said. “I’ve seen it in Colorado, where we’re based. In 2014, when recreational adult use laws were passed, I saw what happened in the warehouse sections, where there was really depressed real estate pricing and really a lot of empty buildings and the cannabis business resurrected that.” The co-founder said he expects similar occurrences happening across the states. And I see that happening across the states. “The U.S. is certainly close to starting to get into a mode of federal national legalization,” he said. “There’s certainly banking issues that still need to be resolved, but there’s certain legislation that’s in front of Congress and Senate right now…there’s a lot of initiatives in the U.S.” Salaman also noted that outside of the U.S., he sees a lot of activity in the cannabis space in Europe, South America and Israel.
EXPANSION: Salaman said GrowGeneration is very strategic and takes a first mover point-of-view when thinking about expansion. “Oklahoma passed its law for medical growing in and around September last year and we had our operation in Oklahoma City opened in October,” he said. “It takes our company under 90 days to open up a new location. We did that in Oklahoma City and we just expanded to Tulsa because of the success we’ve been having. What that did for us is that we we’re able to capture the 2,000 licenses, which is a very liberal licensing rule for cultivation. We got into that market first, we’ve captured hundreds and we continue to grow that business now both in Tulsa and Oklahoma City.” Salaman noted the company is in the process of closing an $8M acquisition of a three-store chain with locations in Maine, Massachusetts and New Hampshire. The co-founder said the company also has eyes on New Mexico, Arizona, Missouri, New York, New Jersey, Pennsylvania, Maryland and Florida as companies views those markets as growth opportunities. “Those markets are just really getting started and we feel they are going to be opening up where there will be many, many more licenses to grow,” he said. Salaman added that GrowGen looks to follow the regulatory framework not only on a state-by-state basis but by a country-by-country one too. He noted the company is in discussions to duplicate its model in Canada. “We see tremendous growth opportunities in putting a supply chain up in the Canadian market and servicing the large LPs and microcultivation licenses that are going to be issued in the next months or so,” the co-founder said, adding the company is also in talks with an operation in the European Union.
CHALLENGES: Salaman said he views scalability as the biggest challenge for other companies in the space. “What we’ve been able to demonstrate, which is unique in the space, is profits,” he said. “We’ve built our company on the basis of profitability. We’ve not built our company on a market grab concept like a lot of other companies have done in the space.” The co-founder said he believes the challenges those companies face is that they’re building a business model contingent on topline growth and access to capital, which is dilutive to shareholders over time. “We’ve taken an extremely disciplined approach, we have under 29M shares outstanding,” he said. “We’ve been very careful, most of our capital comes from private equity groups and we’ve been able to invest in inventory and fix assets…we now have that foundation to scale from this year with guidance at $65M to next year when we’ll be well past a $100M business.”
OPPORTUNITIES: When looking at opportunities in the space, Salaman said he believes future opportunities will fall more on the product side. “There are a lot of opportunities for GrowGen to be a leader in product development, putting technology into the market, creating better results for our growers and providing real value from intellectual property,” he said, adding that a lot of research and development work is done internally due to the company’s knowledgeable staff. The co-founder said he also sees upside for GrowGen through continued growth via its acquisition strategy and same-store sales. He noted GrowGen is looking at a “very interesting” company and expects to have a deal closed in Q2, that will provide GrowGen with a manufactured product “that most, if not all, commercial growers need to buy as part of their buildout.” He added,“We continue to see our current customers expand their own business, so we’re seeing same stores continue to grow. We see tremendous acquisition opportunities in vertical markets that are complementary to the core business and we see an international business. I think all of that translates into continued triple-digit growth for many years going forward.” The co-founder also said the company sees “tremendous” profitability in the future. “We’re very excited about where the company is headed as a leader in the hydroponic and supply business,” Salaman said. “If you want supplies for your cultivation facilities, you come to GrowGen and that’s what we have kept our blinders on. We have stayed extremely focused to stay in that lane.”
OTHER CANNABIS STOCKS: Publicly-traded companies in the space include Aurora Cannabis (ACB), Aphria (APHA), CV Sciences (CVSI), CannTrust Holdings (CNTTF), Cronos Group (CRON), General Cannabis (CANN), Canopy Growth (CGC), Tilray (TLRY), Innovative Industrial Properties (IIPR), India Globalization Capital (IGC), ICC International Cannabis (KNHBF), Biome Grow (ORTFD), MediPharm Labs (MLCPF), Indiva (NDVAF), OrganiGram (OGRMF), KushCo (KSHB), MedMen Enterprises (MMNFF), Elixinol Global (ELLXF), Planet 13 Holdings (PLNHF), Wayland Group (MRRCF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Origin House (ORHOF), Sunniva (SNNVF), Sproutly (SRUTF) and DionyMed Brands (HMDEF).
GrowGeneration
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Aurora Cannabis
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APHA
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CV Sciences
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CNTTF
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Cronos Group
-1.01 (-6.54%)
Trees Corporation
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Canopy Growth
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Tilray
+0.27 (+0.59%)
IGC Pharma
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Innovative Industrial Properties
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ICC International Cannabis
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ORTFD
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Changed to MEDIF
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INDIVA
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Organigram
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KushCo Holdings
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Elixinol Global
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Planet 13 Holdings
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Wayland Group
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Khiron Life Sciences
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Liberty Health Sciences
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Origin House
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Sunniva
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Sproutly
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HMDEF
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MedMen
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