JP Morgan Recommends a Stock Levered to the Cannabis Industry Boom

JPMorgan…you are late.

Yesterday, JPMorgan recommended Scotts Miracle-Gro (SMG) to its clients and changed its rating to Buy from Hold because it believes Scotts’ recent hydroponics business acquisitions will pay off as legal marijuana use increases.

JPMorgan’s analyst said, “We view Scotts as a reasonably valued investment over a longer time frame as weather impacts have understated Scotts’ sales growth and Scotts’ investment in its faster growing hydroponics portfolio should provide further upside.”

Just More Than a Year Late

In April 2015, Technical420 highlighted Scotts Miracle Gro as an ancillary play on marijuana in this article.

Our recommendation came after one of Scotts’ subsidiary announced a deal to acquire Santa Rosa-based General Hydroponics, a leading international supplier of liquid nutrients used to grow food, flowers and indoor marijuana.

Scotts’ subsidiary also acquired its sister business Bio-Organic Options, which sells organic soils and other gardening supplies under the Vermicrop brand.

A Portfolio of Acquisitions

Scotts just added to its portfolio of hydroponic businesses through the acquisition of Gavita Holland BV, which has $100 million in annual sales. Scotts’ subsidiary Hawthorne Gardening Co. purchased 75% of the company for $136 million in June.

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.

In April 2013, Scotts Miracle-Gro entered into a strategic alliance with AeroGrow International (AERO). 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.

See Further Upside to Current Levels

Currently, 25 states and the District of Columbia have legalized medical marijuana and four states legalized recreational marijuana. This is just the tip of the iceberg as several states are set to vote on some form of legal marijuana this November.

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 attractive and we continue to view Scotts Miracle Gro as an attractive play on the legal cannabis industry. 

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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