8 Best Pot Stocks to Buy

2. The Scotts Miracle-Gro Company (NYSE:SMG)

Number of Hedge Fund Holders: 29

The Scotts Miracle-Gro Company (NYSE:SMG) manufactures and sells consumer lawn, garden, and pest control products, as well as soilless indoor gardening equipment. The Ohio-based company has applied its expertise in horticulture and gardening to develop innovative technologies and solutions specifically tailored for cannabis cultivation. SMG reported revenue of over $1.52 billion in Q2 of 2024 ending March 31st, 2024, a slight decrease from the $1.53 billion reported in the same quarter last year. However, net profit soared by an impressive 44%, from $109.4 million to $157.5 million, due to the decrease in costs.

Jim Hagedorn, CEO of The Scotts Miracle-Gro Company (NYSE:SMG) stated in the company’s Q2 earnings call transcript:

“Everything we’ve done to get to a better place is happening, just like we projected it would when we laid out our fiscal ‘24 guidance. We told you we would achieve high single-digit growth in the consumer business and $575 million in adjusted EBITDA this year. And we’d do so while generating $1 billion in free cash flow over two years by the close of fiscal ‘24, improving gross margin by at least 250 basis points, and finding a long-term solution for Hawthorne. Free cash flow is a fabulous story. It improved over $500 million from prior year, exceeding our first half target by $200 million. Our debt levels are down by more than $750 million year-over-year. The most telling sign we’re in a better place is our leverage improvement. For Q2, we finished at 6.95x EBITDA, well within our covenant max of 7.7x, and better than Q1.”

The Hawthorne Gardening Company, SMG’s struggling subsidiary for cannabis growers, reported 28% lower net sales compared to the year before, mainly driven by lower volumes and price reductions. Hawthorne is moving away from distributed products to cut costs, shutting down 13 of its distribution centers in the last two years, and is now focused on its more profitable, exclusive, and owned brands like Gavita, Botanicare, General Hydroponics, Psycho, Mother Earth, and HydroLogic. The subsidiary’s recently announced distribution partnership with BFG is also expected to lower cost structure throughout the year.

29 hedge funds in the Insider Monkey database were bullish on SMG in Q1 of 2024, with a collective stake value of $422.7 million.