Scotts betting on big growth in marijuana, putting money in hydroponics

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Scotts Miracle-Gro has a budding hydroponics business and what it hopes is a friend in the new president.

But what it doesn’t know is how the Trump administration feels about legalization of marijuana use — a factor that’s driving sales of some of Scotts’ products.

“I was a supporter of Donald Trump. I voted for him,” said Scotts CEO Jim Hagedorn, during an earnings call with analysts Tuesday morning. He said he did so because he expected Trump would be good for Scotts’ business plans, including its interest in the marijuana industry.

The Marysville-based company makes most of its money selling weed killers, mouse traps, lawn fertilizers, soil and mulch, but its future growth is pinned on a once-nefarious concept — helping people grow marijuana.

Analysts wanted to know where Hagedorn saw the marijuana-farming industry expanding. Christopher Carey, an analyst with Bank of America, asked whether the players driving demand were small, individual growers, local shops and/or medium- to large-scale operations.

“I would say all of the above,” Hagedorn said. “We see growth in all of those areas.”

In the past two years, Scotts has spent more than $200 million acquiring a soup-to-nuts hydroponics portfolio of indoor lighting products, growing containers, nutrients, additives and the like.

Scotts is betting so much on marijuana that the next meeting of its board of directors will be held in Colorado, which legalized pot for sale to the public in 2014.

One of the unknowns, though, is how the new president will approach the legalization movement going forward.

Will he be hands-off or edge closer to the “law-and-order” language he has used to tout his toughness on crime?

Marijuana remains illegal under federal law. Trump’s pick for attorney general, Jeff Sessions, has a history of being tough on drugs, but he said during his recent confirmation hearings that cracking down on state marijuana markets might be difficult. Sessions also said he would never commit to dismissing federal law.

“The Trump administration is unspoken,” said Andy Joseph, owner of Apeks Supercritical of Johnstown. “The wild card in the whole thing is Jeff Sessions and what he is going to do.”

Apeks makes equipment that extracts essential oils from plants, including marijuana, for use in a variety of products, from soap to food. Joseph thinks the industry is set for massive growth and that Trump’s administration is unlikely to get in the way.

In November, California, Nevada, Massachusetts and Maine all legalized the recreational use of marijuana. California’s entry alone will exponentially expand the market, said Justin Breidenbach, assistant professor of accounting at Ohio Wesleyan University and a marijuana industry expert.

“California alone will be double the revenue of all of the states combined,” he said. “People will just go gangbusters when that opens up.”

Joseph and Breidenbach both believe that Trump is a champion of states’ rights and will leave the matter alone for the most part. Hagedorn is betting the same thing.

Though Scotts’ core businesses have grown slowly, hydroponics — grouped within its Hawthorne Gardening subsidiary run by Hagedorn’s son, Chris — has increased by double digits. Scotts’ most recent quarter saw sales growth of 27 percent, mostly due to recent acquisitions.

As more and more states approve marijuana for medical and recreational use, companies serving the industry see a lot of opportunity. Ohio made marijuana legal for medical use last year. 

“I am very optimistic,” Joseph said. “It is not going to go backward. The tide is turning.”

Hagedorn also sees the marijuana industry as a little different from the typical corporate America operation.

Hawthorne is based in New York with a second office in California. And even though it is staffed with some Scotts veterans and shares a lot of resources, it needs to be at an arms length from the folks in Marysville.

“Oh, dude. It is such a unique culture,” Hagedorn told an analyst. “If you had a bunch of old guys from Ohio with gray hair trying to run that business, we’d screw it up pretty hard.”

“There is a group in the industry that does not like big business,” Breidenbach said. “They don’t want corporations to come in and take it over, but some people also like that big corporations are coming in and giving it some validity.