A Growing Matter

Over the past few years the profitability of the cannabis industry has grabbed the attention of investors. However, for many of them, the legal grey area that currently stands causes hesitation when investing directly into facilities. Also, Canadian based grow companies with IPOs have been extremely volatile, with most falling short of their profit goals. So this begs the question, are there ways to invest in the cannabis industry without directly investing into a grow or store, and the short answer is yes.

One company I have been watching is Hydrofarm (HYFM). They are a wholesale distributor of grow equipment, and supplies to hydroponic and gardening stores around the country. For years, their main market was the cannabis industry, which as we know is only going to get larger. But now with the increasing popularity of environmentally controlled agriculture in the farming community, I think we will see even more demand for the kind of equipment they supply. So, if you want to dabble in investing in the cannabis industry, Hydrofarm (HYFM) may just be for you.

https://www.bloomberg.com/news/articles/2020-12-10/in-hydrofarm-ipo-investors-seek-pot-growth-without-the-pot

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Welcome to the community!

Interesting take on a new industry, what are the big players in that market beyond hydrofarm?

I remember hearing there were some issues with the industry working with financial institutions (i.e. banks and investments), has that been resolved?

Interesting financials, 2.4B market cap on 235M revenue, low debt at 126M…

Source: tradingview

Thanks! It looks like Scotts Miracle Gro (SMG), is the other big player in the industry. There are definite issues with trying to put money in the bank if you are running a cannabis business that deals directly with cannabis product sales. However, companies servicing the industry such as Hydrofarm and Scotts Miracle Gro have no restraints with banks. There are loop holes that some banks use to help service the cannabis industry but most main stream financial institutions still wont play ball.

https://acslabcannabis.com/blog/education/banking-options-for-us-based-cannabis-hemp-companies/

So what makes hydrofarm better than its competition? Seems like there’s a lot out there or ones that could easily move in.

I like Warren buffet’s strategy of always looking for a “moat”, i.e. a competitive advantage that gives it a leg up over the competition (and thus able to sell more at higher profit).

Interesting video on the entire industry: