The $543 million hydroponics industry grew at a 7.7% clip between 2007 and 2012, according to IBISWorld market research, thanks to ongoing increases in medical marijuana use and a long-term shift towards organic foods. Meanwhile, data collected by MMJ Business Daily from a Washington State report suggests that the marijuana industry could become a $45 billion per year industry over time. But despite the significant market size and growth, there are no companies with a dominant market share in hydroponics for marijuana growers.
Multi-billion dollar retailers like The Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW) may provide basic supplies, but these conservative companies are well behind the curve when it comes to the advanced products needed in the marijuana industry. Investors may instead want to take a look at an emerging micro-cap stock that’s growing its presence in the market ahead of potential federal legalization. If and when this occurs, the company will be well positioned as an entrenched leader in marijuana hydroponics.
The Hydroponics Conglomerate
GrowLife Inc. (OTCQB: PHOT) has become a hydroponics conglomerate of sorts over the past few years. In February of 2011, the company acquired Phototron Inc., a 25-year-old manufacturer of plant growing systems complete with its own self-contained attractive cabinet and a full line of accessories including nutrients, media, timers and controls.
In March of 2012, the company acquired
SG Technologies Corp., a leading brand of hi-power LED lights and wireless monitoring and control equipment. The firm’s quad band lighting technologies replaces energy inefficient HPS lamps, while its sensors enable 24/7 access to all lighting, irrigation, environmental, and security controls via smartphones. This innovation was enough to garner the attention of "High Times" magazine, who made the launching of SG sensors remote control grow room their
November 2012 feature story.
In July 2012, GrowLife acquired Greners.com, an online supplier of a full range of hydroponic equipment for shipment worldwide. Started as a family business in Sonoma County, California, the online shop maintains an extensive and continuously updated product offering, which the company plans to expand by leveraging its existing brand portfolio.
And in October 2012, the company acquired well established the LA based hydroponics retailer Urban Garden Supplies. At the time, GrowLife explained that it was considering a deeper commitment to retail stores, with hands-on demonstration of its core technology in a one-stop shopping environment with well-informed full service sales and support staff.
Moving into Brick & Mortar Sales
GrowLife expanded its retail footprint still further in mid 2013 with the acquisition of the Colorado and New England based stores and management team of Evergreen Garden Centers and Rocky Mountain Hydroponics
www.rmgardener.com. This acquisition by GrowLife also included on line retail superstore
www.58Hydro.com, which has been expanded and relaunched this past week. GrowLife now has at least six publically announced retail sales channels directed to this unique market, at an estimated $8 million/year run rate. Over the next 12-18 months, management plans to expand these retail store revenues by 200% through a combination of new store openings and the acquisition of existing stores throughout the United States.
In a recent press release, the company announced plans to build out up to 30 new brick and mortar retail locations with an initial build-out goal of 12 stores and $15 million in annual retail sales in FY2014. Extrapolating these revenue run rates per store, the eventual goal of 30 retail locations could be expected to generate some $37.5 million in annual revenues.
While GrowLife hasn’t explicitly laid out its plans, management did indicate that the new retail locations would be funded through shareholder-friendly means that limit dilution for existing shareholders. Management is also leaning on its experience with Urban Garden to strengthen its platform with a robust ERP solution managed by a top-tier IT department.
In the end, management expects the new retail network to expand revenues to $15 million by the end of FY2014, which would represent an 87.5% top-line growth rate from its projected $8 million in FY2013 revenues. The revenue run rate could also favorably impact the stock’s valuation, which remains at a sub-$20 million market capitalization as of July 25, 2013.
Potential Investment Opportunity
GrowLife represents a strong potential investment opportunity, with its modest sub-$20 million market capitalization and upcoming growth initiatives. It is fully reporting BB/QB company with financial transparency that is also a rarity among investment opportunities in a unique growing space. With the opening of new retail locations, the company will be able to expand its footprint in a fragmented $543 million industry that’s rapidly growing from a marijuana industry that could reach $45 billion per year in size. Moreover, the company will have a significant first-mover advantage in the market, helping its revenues rapidly scale and making it a potential acquisition candidate down the road.
In contrast to many other marijuana-related stocks, like Cannabis Sciences (OTCQB: CBIS) or Medical Marijuana Inc. (OTCQB: MJNA), the company’s expansion plans are also not dependent on full legalization of marijuana. In fact nothing that GrowLife does or sells is considered illegal by anyone. Consequently investors are waking up to the idea that GrowLife has excellent upside exposure to a rapidly expanding market, without many of the risks that other stocks in the marijuana space inherently have.
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