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Grow Generation Stock a Domestic Cannabis Cultivation Play

Tuesday, March 23, 2021 | Jea Yu
Grow Generation Stock a Domestic Cannabis Cultivation PlayDomestic hydroponic retailer GrowGeneration (NASDAQ: GRWG) stock has been a volatile ride. The Company is executing a roll-up strategy that aims to be the Home Depot (NYSE: HD) of cannabis supplies serving professional growers to do-it-yourselfers. As marijuana legalization continues to gain traction on a state-by-state basis with the potential for federal decriminalization in 2021, GrowGeneration benefits directly from consumers seeking to try their hand at growing their own cannabis legally. Unlike cannabis producers Tilray (NASDAQ: TLRY) and Village Farms (NASDAQ: VFF), which are mainly located outside of the United States, GrowGeneration doesn’t carry the risk of federal prosecution as it doesn’t sell actual marijuana end products. It seeks to capitalize on cannabis cultivation through an acquisition strategy shoring up a highly fragmented industry to gain maximum market share. The legalization of cannabis or more so the decriminalization is a boon to the Company, which gains even before states collect a single tax dollar. Prudent investors seeking exposure in the cannabis cultivation trend can monitor shares of GrowGeneration for opportunistic pullback price levels.

Q4 and Full-Year 2020 Preliminary Earnings Release

On Jan. 11, 2021, GrowGeneration preannounced its Q4 2020 and full-year 2020 results. Revenue for Q4 rose 142% to $61.5 million versus $25.4 million in Q4 2019. Full-year 2020 revenues rose 140% year-over-year (YoY) to $192 million compared to $80 million in 2019. The Company acquired 14 new stores in 2020 to close out the year with 39 locations throughout 11 states. Full-year same-store sales (SSS) were up 63% YoY. The Company raised its full-year 2021 revenue guidance range between $335 million to $350 million and Adjusted EBITDA between $38 million to $40 million. GrowGeneration CEO, Darren Lampert stated, “We delivered strong shareholder value in 2020, with triple-digit revenue growth despite unprecedented challenges and an uncertain environment. This growth came through strategic acquisitions of best-in-class hydroponic stores, exceptional same-store growth, and the expansion of our omnichannel and private label offerings, a strategy we will accelerate this year.” The Company plans to operate 55 centers by year-end 2021.

2021 Acquisition Trail

GrowGeneration has continued its acquisition binge since its January earnings release. On Feb. 1, 2021, GrowGeneration acquired a two store chain called Grow Depot in Auburn and Augusta, Maine. The Company expects to generate over $20 million in annual revenues in Maine for 2021. On March 15th, GrowGeneration acquired Char Coir, a best-in-class highest-grade coco coir substrate to bolster its private label offerings. The Company expects the acquisition to add $15 million in annual revenues in 2021. On March 12th, GrowGeneration acquired 55 Hydroponics, a leading hydroponic supplier in Orange Country, California, with annual revenues of $10 million. This expands GrowGeneration store count to 18 in California. On March 17th, the Company acquired Aquarius Hydroponics, the largest hydroponics retailer in New England. “The deal for Aquarius Hydroponics with annual revenue of $5 million represents our entry into the Massachusetts’ cannabis market, which is projected to become a $1 billion industry in 2021”, stated GrowGeneration CEO Lampert. The Company is actively pursuing its goal of operating 55 garden centers by year-end 2021 and has already raised the store count to 52 so far. Opportunistic pullbacks are the most prudent way to scale into a position for risk-tolerant investors and nimble traders.

Grow Generation Stock a Domestic Cannabis Cultivation Play

 GRWG Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a more precision near-term perspective of the landscape for GRGW stock. The weekly rifle chart uptrend peaked out in early February around the $67.46 Fibonacci (fib) level. Shares gave back half its gains in the sell-off that bottomed out at $33.02 on March 5th before snapping back on the daily market structure low (MSL) buy trigger above $45.42 followed by the weekly MSL trigger above $49.43. The daily market structure high (MSH) sell trigger under $52.26 was also broken to the upside. This sharp bounce stalled the weekly 5-period moving average (MA) support at $49.49 while the weekly 15-period MA continues to rise at $46.99. The weekly stochastic mini inverse pup oscillation down stalled near the 60-band setting up a weekly make or break situation that can result in a weekly pup breakout if the weekly stochastic crosses up or a mini inverse pup if the weekly 5-period MA crossover down through the 15-period MA occurs. The daily rifle chart formed an uptrend reversal powered by the stochastic mini pup full oscillation through the 80-band as it enters overbought territory under the $56.01 fib resistance. Prudent investors can monitor for opportunistic pullback price levels at the $50.55 fib, $48.41 fib, $45.42 fib, $41.73 fib, and the $39.38 fib. Upside trajectories range from the $62.60 fib up to the $76.75 fib. Keep an eye on peers Hydrofarm (NASDAQ: HYFM), TLRY and Canopy Growth (NASDAQ: CGC).  

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
GrowGeneration (GRWG)2.1$39.93+12.4%N/A798.76Buy$50.89
The Home Depot (HD)2.2$323.63-0.6%2.04%28.00Buy$316.47
Tilray (TLRY)1.4$13.93+1.8%N/A-3.07Hold$20.67
Village Farms International (VFF)1.9$8.70+10.2%N/A-173.87Buy$20.28
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