Will expansion into California boost GrowGeneration’s share price?

GrowGeneration’s [GRWG] share price has experienced highs and lows so far in 2021.

After ending 2020 on $40.22, GrowGeneration’s share price grew 68.4% to hit an all-time high of $67.75 during trading on 10 February. GrowGeneration’s share price entered a slowdown from there, and in the space of a month fell 44.2% to close 8 March at $37.79.

However, recent days have seen considerable regrowth, with GrowGeneration’s share price recovering to close 17 March at $54.15, up 34.6% since the start of the year.

Through it’s been a turbulent time for the budding cannabis industry, the largest hydroponics supplier to the US has been a steady performer, consolidating on positive 2020 earnings to put an ambitious expansion strategy in motion in 2021.

New roots

GrowGeneration pre-announced record revenues of $192m for 2020 on 11 January 2021, and increased its preliminary 2021 guidance to $335m-$350m. In an attempt to realise the ambitious targets, the Colorado-headquartered company increased its projected number of operating garden centres to 55 by the end of the year, and has been on a spending spree ever since.

First it acquired Washington-based hydroponics equipment supplier Indoor Garden and Lighting on 26 January, which brought GrowGeneration’s garden-centre count to 40. Next came Grow Depot, a two-branch chain based in Maine, which was purchased on 1 February. GrowGeneration’s shares gained 4% during intraday trading in response to the acquisition.

On 16 February, the company bought Grow Warehouse, a four-store hydroponics garden centre chain in Colorado and Oklahoma. Then, on 23 February, GrowGeneration announced the purchase of “San Diego’s Leading Hydroponics Supplier”, San Diego Hydroponics and Organics, and its four Southern California stores. These announcements saw daily gains of 3.9% and 4.6%, respectively.

This month hasn’t seen a slowdown, with the company announcing on 9 March that it had signed leases for two new Super Hydroponic Garden Centres in Southern California, including one in downtown Los Angeles. Most recently, 16 March saw the acquisition of Orange County’s largest hydroponics supplier, 55 Hydroponics. This latest deal has brought GrowGeneration’s US location count to 53, according to a company press release.

Market ups and downs

GrowGeneration’s share price had been falling until the latest pair of acquisitions, and closed 8 March 17.2% below its end of February closing price. While the recent acquisitions have fuelled a resurgence in GrowGeneration’s stock performance, the slump reflected a malaise that has afflicted the entire cannabis industry since mid-February.

This is partly the result of the bursting of the bubble that was initially triggered by Reddit forums hyping weed stocks. The stocks most heavily-affected — Aphria [APHA], Tilray [TLRY] and Canopy Growth [WEED] — all saw huge falls in their share price on 11 February, and neither Tilray nor Canopy Growth have regained their pre-slump prices.

This has made life hard for the ETFs that carry them. All five ETFs shown on the Opto Thematic ETF Screener have seen falls during the last month. The Global X Cannabis ETF [POTX] — of which Aphria, Tilray and Canopy Growth were the fund’s first-, second- and eighth-largest holdings at 10.1%, 9.1% and 5.1% respectively as of 16 March — closed 17 March, 37.7% down on its 10 February close.

However, POTX doesn’t carry GrowGeneration, and ETFs which do so appear to have fared better. GrowGeneration is the fourth-largest holding (as of 17 March) in the ETFMG Alternative Harvest ETF [MJ] at 5.7% of the fund, and the fourth-largest in The Cannabis ETF [THCX] at 5.6% of the fund (as of 17 March).

While both took a hit as a result of the Reddit bubble bursting, they are down 27.4% and 26.8% respectively over the same period from close 10 February to 17 March.

GrowGeneration’s strong performance and rapid expansion haven’t escaped the attention of experts. Jeff Marks, senior portfolio analyst at TheStreet, said: “The one name [in the cannabis space] that I’ve been behind for a while… [is] GrowGeneration Corp.

“Why I’ve liked this story is it’s a growth story with a lot of visibility, and that’s because it’s a rollout, meaning that they’re constantly making acquisition after acquisition to increase their retail footprint across the country and gain market share.”