In the past three months, cannabis stocks have swooned in general. The AdvisorShares Pure Cannabis ETF is down more than 6% and plenty of individual cannabis companies are down a lot more.
Columbia Care (CCHWF -7.44%), Hydrofarm Holdings (HYFM 0.91%), and Scotts Miracle-Gro (SMG -1.33%) are all down 18% or more in the past three months despite what I see as positive financial trends for the trio that make them bargain stocks at the moment.
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Columbia Care is an overlooked MSO
Columbia Care's shares are down more than 26% in the past three months. The company is one of the larger multi-state operators with 96 dispensaries, including those operating and those in development, and licenses in 18 U.S. jurisdictions and the European Union. It also has 31 cultivation and manufacturing facilities.
The company is in the process of buying Denver-based Medicine Man Technologies, and the addition of that company's four retail outlets will make Columbia Care the largest cannabis operator in Colorado, the state with second-most sales in the United States, with 26 stores.
In its second-quarter report, released on Thursday, Columbia Care reported revenue of $109.7 million, up 232% year over year and 19% sequentially. It also saw record adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of $16.4 million, an improvement of $21.1 million over the same period in 2020 and 58% sequentially.
The states where Columbia Care is seeing the most revenue are California, Colorado, Massachusetts, Ohio, and Pennsylvania, though it also had a jump of 48% in revenue in Florida, due to increased flower production and new product launches, according to the company.
Hawthorne leading the way for Scotts Miracle-Gro
Scotts Miracle-Gro's shares are down more than 31% over the past three months, even though it is coming off a strong third quarter.
The company, through its subsidiary, the Hawthorne Gardening Company, is a leading provider of lighting, supplements, nutrients, hydroponic equipment and everything else needed to grow marijuana.
Hawthorne's growth has helped drive the company's overall revenue. In the third quarter, Scotts' sales were up a reported 8% year over year, led by Hawthorne's rise of 48% in sales. The company also purchased HydroLogic Purification Systems -- which makes products, accessories, and systems for water filtration and purification -- for $65 million. It will be part of the Hawthorne segment and is expected to add $20 million in annual sales, the company said.
Through nine months, Scotts' sales were $4.91 billion, up 29% year over year, with net income of $560.4 million, up 46% over the same period in 2020.
Really, the main concern at this point is that the rest of the company isn't keeping up with Hawthorne's growth, but that's not surprising, given the expected increased need of equipment to grow cannabis, both commercially and at the home, as more states relax marijuana laws.
Scotts said it expects full-year growth of 17% to 19% in sales, led by 40% to 45% growth by Hawthorne.
Sit back and watch Hydrofarm Holdings grow
Hydrofarm's shares are down more than 18% over the past three months. The company specializes in controlled-environment agriculture equipment for all kinds of crops, but its products are particularly useful for growing cannabis. The company, founded in 1977, sells high-intensity grow lights, climate control solutions, and growing media. It went public in December and has had four consecutive quarters of 60% or more organic sales growth.
In its second-quarter report, announced after Thursday's close, the company said quarterly revenue was $133.8 million, up 47% year over year and a record for the company. Hydrofarm also listed net income of $2.3 million, up 21% over the same period in 2020. And it reported adjusted EBITDA of $16.2 million, compared to $7.1 million, year over year.
The company only sells wholesale, so it doesn't compete directly with Scotts in the retail sector. It has been aggressive in buying up competitors. Earlier this month, it spent $83 million to buy plant nutrient maker Greenstar Plant Products. Last month, it bought Oregon-based hydroponics products manufacturer and supplier Aurora Innovations, Aurora International, and Gotham Properties. It also purchased nutrient brands HEAVY 16, House & Garden, and Mad Farmer. With the additions, the company said it expects to see annual sales of 45% to 50% above 2020.
Take your pick
I don't think any of these choices is a bad one. To me, they're basically underpriced due to overarching market sentiment regarding cannabis stocks and should likely go higher based on their financials.
I think Scotts is the best buy of the three, based on its low forward price-to-earnings ratio of 16.91, the diversity of its business, and the phenomenal growth of Hawthorne.
I also like Columbia Care as it has the most upside to go with slightly more risk than the other two stocks. The number of cannabis retailers keeps growing, but eventually there will be a shakeout and the large multistate operators such as Columbia Care should be the beneficiaries when that happens.
Hydrofarms is another solid choice, based on its growth, but as the smallest company of the three, I'd rather wait this one out to see the impact of its recent acquisitions.
