Scotts Miracle Gro wants to split up from Hawthorne due to a decline in growth – MEDCAN24

The leadership of Scotts Miracle-Gro Co. (NYSE: SMG), announced executives during an earnings call on Wednesday, is now united behind the plans to split its Hawthorne Cannabis unit. First steps could be taken within the next few months.

Jim Hagedorn reverses his decision, having previously supported keeping Scotts’ now profitable division despite the volatile nature of its business. But with Hawthorne projecting just $20 million in EBITDA this year – what Hagedorn called “relatively small beer” during the call – the company’s leadership concluded that the unit would fare better as a stand-alone cannabis business.

Hagedorn explained to analysts that they were not looking to dispose of the property. We’re trying to concentrate our investments on the most beneficial configuration for our shareholders.

Hagedorn alluded at tensions surrounding Hawthorne’s performance goals versus calculations by the company. “It’s a bigger number than … our strategic plan numbers, meaning that I think it’s going to be hard work for them to get to a number that I would find respectful,” he said.

Hawthorne is showing signs of stability, even if at a lower level. The revenue fell by 35%, to $52 millions in the first fiscal quarter. However, executives claimed that the drop was inevitable after the spring exit of lower-margin operations.

Hagedorn responded that the separation was made following long-term internal discussions, and management had unanimously agreed to it.

“I wanted my entire leadership team to say, ‘Do you guys all agree?’ Hagedorn explained that it wasn’t just me and some of our advisors who agreed. They said yes.”

He said a spin-off would help Scotts avoid the volatility of the cannabis industry while giving Hawthorne tax advantages and increased credit access. Hagedorn was convinced by external advisers that the unit could “be so much more valuable” in a pot-only business.

Scotts has also recently restructured the cannabis portfolio. It converted the company’s previous stake in RIV to non-voting Cansortium stock (CSE TIUM.U, OTCQB CNTMF). The loss was $7 million after RIV merged Florida operator with New York-based Cansortium last month.

Chris Hagedorn – who is the head of Hawthorne but recently was promoted to executive vice president and Chief of Staff – will lead this unit following separation, while still maintaining “formal relations” with Scotts.

Hagedorn suggested that first assets could be moved “in as little time as a few months.” The executives said that the separation would not impact Scotts’ fiscal 2025 goals, but they did not provide any details about timing or structure.

Scotts has a long and complicated journey in the cannabis industry. In 2014, the company acquired Hawthorne and grew it to become North America’s biggest hydroponics provider. As wholesale prices and the state-licensed marketplaces matured, business was a struggle.

Hagedorn argued that moving Hawthorne away from Scotts Miracle-Gro would be better for everybody. Our banks and we believe that this would help to clarify what equity is and increase our multiple of price to earnings.