1. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 28
Topping our list of the Best Marijuana Stocks According to Hedge Funds is The Scotts Miracle-Gro Company (NYSE:SMG) – the world’s largest marketer of branded consumer products for lawn and garden care. The Ohio-based company has applied its expertise in horticulture and gardening to develop innovative technologies and solutions specifically tailored for cannabis cultivation.
The Scotts Miracle-Gro Company (NYSE:SMG) reported a revenue of $414.7 million in its Q4 of 2024, up 10.73% YoY and beating the analysts’ estimates by over $15 million. The growth was mainly due to higher sales in the US consumer division, where sales went up by 54% to $309.7 million, driven by the normalization of shipment timing. However, its Hawthorne segment’s sales decreased by 46%, primarily driven by Hawthorne’s exit from the distribution of third-party brands and a decline in sales from its professional horticultural lighting business. SMG announced in its Q4 2024 earnings call transcript that it has managed to dismantle Hawthorne to make it a much smaller and more profitable business, while also reinvesting $100 million into its brands, sales force, supply chain, and innovation.
Despite the uptick in revenue, The Scotts Miracle-Gro Company (NYSE:SMG) ended the quarter with a loss of $244 million, though it was much better than the $468.4 million loss it suffered in the same period last year. The company has been facing several challenges over the last few years, including high debt and an unsustainable cost structure due to a decrease in demand after the pandemic. As a result, it has had to make some hard decisions to right-size its business and cut over $400 million in operating expenses. These decisions included mass layoffs and the closure of distribution facilities, leading to a loss of talent and hindering the company’s ability to innovate, which is crucial given the shifting market dynamics.
Notably, The Scotts Miracle-Gro Company (NYSE:SMG) managed to deliver on its target of generating over $1 billion of free cash flow over two years with more than $580 million generated this year on top of nearly $440 million last year. It utilized this free cash flow to return value to shareholders through its quarterly dividend and increased balance sheet strength by lowering debt by $390 million. Liquidity also remained strong with nearly $1.2 billion in borrowing capacity and $70 million of cash on hand.
Overall, The Scotts Miracle-Gro Company (NYSE:SMG) ranks first on our list of the best marijuana stocks. While we acknowledge the potential for SMG to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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