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Weed Kills: How Investing In Cannabis Almost Took Down Scotts Miracle-Gro




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It’s a beautiful, chilly November day in Las Vegas and Jim Hagedorn, the CEO, president and chairman of Ohio-based lawn care giant Scotts Miracle-Gro, is pissed off. After nearly a decade of making a series of audacious bets on the legal cannabis industry—Scotts spent $1.7 billion building pot-focused subsidiary Hawthorne Gardening Company and acquiring grow light manufacturers, hydroponic supply outfits, plant nutrient makers and other cannabis cultivation supply companies—he admits the venture has been an abject failure.


Inside his company’s booth at MJBizCon, the largest annual cannabis industry expo held at the Las Vegas Convention Center, Hagedorn throws a booklet of rolling papers across the table to make a point: “This is what our equity is worth,” the 68-year-old Hagedorn says, referring to Hawthorne, which is run by his 39-year-old son, Chris. “When we started making acquisitions [in the cannabis industry], it felt righteous as shit,” says the notoriously foul-mouthed, former F-16 fighter pilot who named his private jet “F-Bomb.”


Back in 2015, when only four states—Alaska, Colorado, Oregon and Washington—had legalized recreational marijuana, Hawthorne started spending hundreds of millions acquiring companies like General Hydroponics (for $120 million), a Santa Rosa-based indoor gardening supply company, to get into the marijuana industry’s ancillary market. The move helped the Hagedorns grab glossy magazine headlines and Scotts’ stock price started to rise from the mid-$50 range to above $60 a share. In 2021, the company agreed to acquire more cannabis-focused companies like Luxx Lighting (purchased for $213.2 million in a deal closed in 2022), a grow-light company started by the founders of respected weed brand Jungle Boys, and brokered a $150 million convertible debt deal with Canadian cannabis investment vehicle RIV Capital. Scotts’ stock bloomed to a robust $244.


But thanks to the marijuana industry’s prolonged recession—driven by the oversupply of cannabis, a crashing wholesale price per pound of weed, a punitive federal tax code applied to cannabis companies, a lack of movement at the federal level to legalize marijuana—and sales at Scotts dropping from $4.9 billion in 2021 to $3.5 billion in 2023, Scotts’ share price cratered 75% from its high two years ago. Hawthorne, which saw its sales decrease by nearly 35% from 2022 to 2023 and posted at a net loss of $48 million for the year, had to terminate 1,000 employees from its 1,300-person staff, and shuttered Luxx Lighting after disposing of $200 million worth of unsold inventory in a landfill. The company is now worth “zero, or less,” says Hagedorn.


“Look,” says Hagedorn, wearing a National Rifle Association hat emblazoned with a “Don’t Tread on Me” logo, “pot almost took us down.”


So why is the billionaire family in Vegas, in the middle of a cannabis conference? Hagedorn lifts both fists and extends his middle fingers in the air, triumphantly. “I mostly wanted to say ‘fuck-you’ to the industry,” he says. “There are people, even good friends of ours, who make fun of Scotts for our investment in pot, how we fucked it all up, and are disrespectful about it.”

And he isn’t just paranoid about feeling disrespected. Bring up Scotts in front of cannabis investors and they’ll laugh and hurl insults like how the Hagedorns are “fucking morons” or “arrogant idiots” for blowing through $1.7 billion. One New York investor says Scotts pulled off “one of the worst deals in the history of cannabis” in 2022, when RIV, at the behest of the Hagedorns, bought New York-based licensed cannabis cultivator and dispensary operator Etain for $247 million. (RIV’s largest shareholder at the time, Jason Wild, president and chief investment officer at JW Asset Management, tried to stop the deal, calling it an “ill-advised acquisition of a significantly over-priced” asset.) Now cannabis licenses in the Empire State, which has been plagued by a slow rollout, lawsuits, and a rampant unlicensed weed economy, trade for a few million dollars.

Hagedorn says that there is one rule: Hawthorne and Chris need to get out of “Dad’s basement.”

But the father-and-son team are smart and humble enough to roll with the abuse. During a November 2023 earnings call, Hagedorn said: “You can throw shit at us—we deserve it.” Besides, they have a plan to spin out Hawthorne from Scotts, an announcement that helped the stock jump 8% in a day. Ultimately, the goal is to create the “Procter & Gamble of marijuana,” Hagedorn says, without a whiff of irony, by selling Hawthorne to a publicly traded cannabis company like Curaleaf, Trulieve, Green Thumb Industries or Verano. (None of these companies commented to Forbes about a potential deal.)


At its height in 2021, Hawthorne generated $1.4 billion in sales, boasting $164 million in profit. But in 2023, the unit generated $454 million in sales and posted a $48 million loss, and most of Scotts’ $2.6 billion in debt belongs to Hawthorne. Hagedorn says that there is one rule: Hawthorne cannot stay inside of Scotts. Or as he puts it, Hawthorne and Chris need to get out of “Dad’s basement.”


It’s not that Hawthorne, which owns more than 20 companies that make everything a farmer needs to grow designer indoor marijuana from lighting to nutrients, doesn’t have value. Matt Garth, Scotts’ CFO concedes that Hawthorne is a “detractor to [Scotts’] overall valuation” but looking towards the “future, there’s a lot of value.”


The younger Hagedorn adds that Hawthorne’s crown jewel is its 40,000-square foot research and development facility in Kelowna, British Columbia, which was built in partnership with a licensed Canadian cannabis company. Completed in 2021, the facility is where Hawthorne tests its products against competitors to see how they can best increase harvest yield, THC potency and consistency. Hawthorne has two other R&D facilities in the U.S.—one in Gervais, Oregon and the other next to Scotts’ headquarters in Marysville, Ohio—that test equipment on hemp plants. (Since cannabis is federally illegal in the U.S. and Scotts is a publicly traded firm, the company must run R&D on weed’s federally legal cousin hemp.) Chris refers to Hawthorne’s R&D facilities as “earth changing” and an asset that could be combined with a cannabis company to create a fully vertically integrated corporation that makes everything from grow lights to weed to retail stores.


“The way we look at Hawthorne, despite how fucked up it’s been, is like a glass slipper—we provide something really special,” says Chris. “There’s not another scaled company like us with the unique benefits we can provide.”


The plan is for a cannabis operator to acquire Hawthorne in exchange for a large minority stock position and board seats and “build something really fucking cool,” he says. And when federal law changes and marijuana is legal in America, Big Alcohol and Big Tobacco—two industries that have already invested billions of dollars in Canada’s cannabis market—might want to do an even bigger deal in the U.S.


“By the time the real big money shows up, if they want to be in the game, the easiest way in is to make us a gigantic offer,” Chris Hagedorn says. “Aside from that, good luck.”


Whether the Hagedorns’ glass slipper will get a fairy tale ending remains to be seen. And not everyone is charmed by the idea. Andrew Carter, a director at Stifel who covers Scotts, says it isn’t completely fair to say the company lost $1.7 billion—Hawthorne and its assets have inherent value and estimates the unit could be worth around $300 million—but the way back will be difficult. “If you could [separate] Hawthorne from Scotts, investors would be happy, and to improve from zero, well, that would be an improvement,” he says. “But I’m negative around the ability to brand cannabis—a Proctor & Gamble of cannabis takes a lot of work and requires a lot of money, it’s hard. Brands aren’t built in five years and they’re not built by Wall Street.”


But Chris Hagedorn remains undaunted. “The legacy of this matters. I’m the third generation,” he says, explaining how his grandfather Horace started Miracle-Gro and how Jim merged the family company with Ohio-based Scotts in 1995. “I don’t want to be the complete fucking idiot who damaged the family legacy.”


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