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Last week, a subsidiary of Scotts Miracle-Gro (SMG: NYSE) announced a deal to acquire Santa Rosa-based General Hydroponics and its sister business in Marysville, Bio-Organic Options. Scotts Miracle-Gro did not disclose the financial information associated with the acquisition.
General Hydroponics has become a leading international supplier of liquid nutrients used to grow food, flowers and indoor marijuana. Bio-Organic Options sells organic soils and other gardening supplies under the Vermicrop brand.
An accretive acquisition with global reach
Larry Brooke founded General Hydroponics more than 35 years ago. Larry is botanist and also a proponent of medical marijuana. The company distributes its products all over the world and have manufacturing plants in Santa Rosa, West Virginia and France.
Larry acknowledged that many medical marijuana businesses utilize his company’s solutions, but he noted that has not been their focus. Larry said that one of his lifelong goals is to develop and perfect a solution that will enable farmers to more effectively grow their products.
Scotts Miracle Gro is in familiar territory
This is not the first company acquired by Scotts Miracle Gro that is levered to the cannabis industry. In 2013, Scotts made a similar acquisition through one of their subsidiaries. The only difference was last time, they did not buy the entire company.
In April 2013, Scotts Miracle-Gro entered into a strategic alliance with AeroGrow International, Inc. (AERO: OTCQB). AeroGrow is based out of Boulder, Colorado and the company is a leader in the indoor gardening market. The company’s products allow anyone to grow farmer’s market fresh herbs, salad greens, tomatoes, chili peppers, flowers and more, indoors, year-round.
AERO issued 2,649,007 shares of Series B Convertible Preferred Stock to a subsidiary of Scotts Miracle-Gro. The company also issued warrants to purchase $4.0 million of AERO common stock. Scotts Miracle-Gro’s subsidiary effectively owns approximately 30.2% of AERO common stock (on an as-converted basis).
During July 2014, Scotts Miracle-Gro provided AERO with a $4.5 million term loan. The proceeds were made in three advances of $1.0 million, $1.5 million, and $2.0 million in July, August, and September, respectively with a due date of February 15, 2015.
Outlook
Scotts Miracle-Gro has been quietly making moves to enter the cannabis industry. The company is focused on acquiring ancillary products that are levered to the growth of the industry which we believe is the right approach. Technical420 finds these developments to be intriguing and something that investors want to monitor.
Once cannabis goes more mainstream, Scotts Miracle-Gro will be levered to the growth of the industry and these acquisitions will prove to be accretive to the company’s top and bottom line.
Investor Disclosures
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