Shares of hydroponics retailer GrowGeneration (NASDAQ:GRWG) caught fire in 2020, as the company successfully capitalized on state-level cannabis legalization trends in the U.S. to grow its store count by 56% and revenues by 141%. GRWG stock soared from about $3 in April 2020 to nearly $70 by early February.
However, the meltdown in hypergrowth stocks over the past month has temporarily stalled this rally in GrowGeneration’s stock. Consequently, GRWG stock has given back 25% from those early February highs.
For marijuana bulls, though, there’s reason to believe this selloff will reverse course soon.
While GrowGeneration is set to report fourth-quarter earnings after the bell today, management already pre-announced Q4 numbers in January. So there won’t be much of a lift to GRWG on earnings.
That said, I suspect that given the company’s streak of revenue-accretive acquisitions over the past three months, management will significantly hike its 2021 revenue and EBITDA guides in the report.
That could provide just the upward catalyst GRWG stock needs to get back on an uptrend and run back to $70.
Here’s a deeper look:
GRWG Stock: The Home Depot of Cannabis
The long-term bull thesis on GRWG stock is very simple: GrowGeneration is emerging as “the Home Depot of Cannabis.”
Growing cannabis is not a straightforward process. Most of the time, it requires a specialized technique called “hydroponics,” which is basically just a soil-free way of growing cannabis (a cheaper and more scalable way of growing pot).
Naturally, demand for hydroponics supplies will soar as the U.S. cannabis market opens up, matures and scales. Though the current state of the hydroponics industry is not ready for this surge in demand.
There are about 1,000 hydroponics stores in the U.S. It’s a highly fragmented market devoid of big brands or consistency across markets. What’s more, online and omni-channel capabilities are limited …
That’s where GrowGeneration steps in.
Founded in 2014 in Colorado, GrowGeneration is a specialty hydroponics retail chain that is trying to consolidate, optimize and modernize the cannabis supplies market by creating an omnichannel, national superstore chain for cannabis growers. Again, think of it as the Home Depot for pot.
So far, GrowGeneration is executing very strongly against that goal.
The company has leveraged a strategic acquisition strategy to expand its branded GrowGeneration hydroponics store base from about a dozen stores in 2017 to 55 stores this year.
Consumers are flocking to those stores (and the company’s e-commerce platform), with comparable store sales rising 58% last quarter. This combination of rapid store base expansion and significant comparable sales growth is powering huge revenue growth (+140% in 2020).
Zooming out, GrowGeneration has a goal of turning into the Home Depot for Marijuana, and has executed almost flawlessly over the past few years on that goal.
So long as management continues to execute like this, GRWG stock will turn keep pushing higher.
Tons of Revenue-Accretive Acquisitions in 2021
Zooming back into the company’s earnings report, I’m bullish on GRWG stock heading into the print because I’m fairly confident management will significantly hike its 2021 guidance.
Back in early January, GrowGeneration reported preliminary fourth-quarter 2020 numbers and raised its 2021 guide. That big “beat-and-raise” update is basically what laid the foundation for GRWG stock to power to $70.
Since that update, GrowGeneration has gone on a buying spree which strongly implies that its 2021 numbers are trending well ahead of what management issued back in January.
Specifically, throughout the first quarter of 2021, GrowGeneration has acquired a ton of hydroponics retail chains in new geographies, including a two-store chain in Main, a four-store chain in San Diego, a four-store chain in Colorado and Oklahoma, and a two-store chain in Washington. These revenue-accretive acquisitions are expected to add about $75 million in annual revenue.
Meanwhile, GrowGeneration has also acquired a private label business in Char Choir, and a purchasing and logistics platform in Agron.io. Combined, those two businesses are expected to add about $35 million in annual revenue.
Add it all up, and GrowGeneration’s buying spree over the past three months will boost 2021 revenues by more than $100 million. Management was guiding for $350 million in 2021 revenues. Thus, I think it’s fairly likely that management hikes its 2021 guide by quite a bit in the Q4 report.
GrowGeneration Stock Back to $70?
Could a big 2021 guidance boost spark a rally in GRWG stock back to all-time highs?
I think so. After all, the last time GrowGeneration hiked its 2021 guidance, it enabled shares to rise to $70. The same thing could happen this time around.
That’s especially true when you consider that inflation fears seem to be subsiding.
Renewed Covid-19 lockdowns in Europe and South America — plus some choppiness in U.S. economic data as of late — has thrown water on the “Great Reopening” bull thesis. This has caused long-term Treasury yields — which were spiking for most of February and March — to settle down over the past few days.
Assuming this stabilization in yields persists, growth stocks will come back into favor. This rising tide will lift all boats, GRWG included.
Bottom Line on GRWG Stock
GrowGeneration is one of the best growth stocks to buy on the dip, before growth stocks coming roaring back to life.
In fact, GWRG is one of my favorite stocks to buy in what I call the “Plant Power” megatrend.
But it’s just one on my top stocks to buy as part of an alternative consumption wave. My focused picks in this megatrend represent the cream-of-the-crop when it comes to companies that are riding a rising tide of shifting consumer attitudes and changing laws.
These companies are paving the way for a new class of food and drugs that will fundamentally alter our consumption and treatment habits in the 2020s.
To learn more about my lineup of hypergrowth cannabis, shroom and plant food stocks, click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.
