Scotts Miracle-Gro Company, NYSE: SMG made it official. The Hawthorne Collective, Inc., a wholly owned subsidiary of the gardening giant, has been officially transferred to an independent strategic investor.
Scotts created its hydroponics company, Hawthorne Gardening in order to break into the cannabis industry. It seemed like an excellent plan at first, since the cannabis industry was growing rapidly and there were many people competing to build the biggest grow facilities. Hawthorne became a market leader and sales of its equipment skyrocketed. Hawthorne Collective, a cannabis investment vehicle created by the Hawthorne Collective, saw the opportunity as well to enter the business of investing in marijuana.
Riv Capital deal
In a statement, it was noted that Hawthorne Collective had invested in Fluent, which used to be Cansortium. Fluent is a vertically integrated marijuana company operating in Florida and Pennsylvania with several licenses. Investors were not reminded that in 2021, the company had given $150 million to Riv. In 2022, Hawthorne Collective contributed another $50 to Riv and Riv Capital invested $247 millions in buying New York’s medical operator Etain.
Riv was furious at the price of this deal. It felt that it would be too much to pay. That turned out prophetic. New York State delayed allowing the company to sell cannabis for adult use, causing the return on investment to be many years later. Riv spent $247 million on a business that sold only one million dollars worth of medical marijuana every quarter.
In December of 2024, Fluent bought Hawthorne Collective’s unsecured convertible notes in Riv for $160 million in Fluent stock.
Hydroponics dries up
Hawthorne Gardening was no better. It was a disaster when the cannabis commodity dropped to a level below or near to that of production costs. Hawthorne Gardening’s sales started to fall as large multi-state operators reduced the size of their huge facilities. Hawthorne Gardening’s falling sales began to affect its stock value and the rest of the company.
Board of Directors decided that it is time for the two subsidiaries to separate.
Jim Hagedorn said that the Hawthorne Collective is a first step to our plan of moving our cannabis-adjacent subsidiary companies into their own independent entity, as we focus our attention on our core garden and lawn business. This will help our shareholders by reducing the volatility of our stock in the cannabis industry and allowing us to invest more into our consumer businesses. In order to further this plan, the next step will be to separate The Hawthorne Gardening Company and ScottsMiracle-Gro before fiscal year 2025.
Scotts Miracle-Gro, according to its statement has transferred The Hawthorne Collective in exchange for a promissory interest-bearing note. Scotts stated that it has the option to purchase The Hawthorne Collective and its assets if cannabis legalization or other measures to benefit the industry are approved on a federal level.
Hagedorn said, “The Hawthorne Companies were meant to capitalize on legal cannabis, but their ability to sustain growth in this industry is challenged by the four years of unfulfilled promises that have resulted in total inaction on cannabis-related matters at the federal government level.”