If you’ve ever planted a garden or nurtured a lawn you’ve probably heard of Scotts Miracle-Gro.
The Ohio company’s subsidiary, Hawthorne Gardening in Vancouver, Washington, has more recently helped cultivators with a trickier plant than carrots or Kentucky bluegrass: cannabis.
Hawthorne’s rapid expansion has helped transform Scotts into a cannabis juggernaut from its early days as a seed company in the late 19th century.
As general manager, Chris Hagedorn has been building Hawthorne’s brands since 2014. He’s added General Hydroponics, Botanicare and Gavita Horticulture Lighting, among others, to Hawthorne’s portfolio.
Hagedorn – a featured speaker on the opening day of MJBizCon, Nov. 14-16 in Las Vegas – spoke with Marijuana Business Daily about how Scotts (NYSE: SMG) became interested in marijuana, his frustrations with state marijuana regulations and challenges for cannabis farmers.
How did Scotts decide to enter the cannabis space?
This was something that our CEO, Jim (Hagedorn) – my father – called out as something that we were interested in as far back as 2011 in a Wall Street Journal article. He’d walked through an Ace Hardware store in Washington state and had seen this massive set of hydroponic products and was intrigued.
He didn’t see any of our products. The store owner had a 4-foot set of traditional lawn and garden stuff and then a 20-foot set of General Hydroponics and Botanicare. The guy said, “This is where I make all of my money. This is where I get all of my growth.” That got (Jim Hagedorn) interested.
What do you see as the outlook for the marijuana industry?
The whole industry is going through a shift right now. It’s certainly had a short-term negative impact on our business – a lot of customers, a lot of retailers and a lot of companies like ours, on the “picks and shovels” side.
I think it’ll turn around. I’m optimistic. We’re still enthusiastic about the long-term outlook. I do wish that more states that pass laws would reach out to other states that have been through legalization to understand what mistakes not to make.
It’s unbelievable. Everybody wants to reinvent the wheel. It’s a waste of time and effort, and you end up seeing the same mistakes made (repeatedly), which is frustrating for me and I’m sure a lot of other people in the industry.
Not to sound all gloom and doom, but our business has been affected negatively this year. That’s one of the tough things about being public. Most of our competitors aren’t public, and I know, just intuitively, that they’re going through the same thing we are. But they don’t have to talk about it. They don’t have to tell people exactly what their numbers are.
So, we’re out there. We’re taking it on the chin. The stock market penalizes us and all that.
But we ask ourselves two questions: “Have people stopped consuming THC?” The answer clearly is no. We know that. More and more people are consuming THC. We check that box. We also ask, “Have our products gone completely out of style? Like overnight?” Again, we feel pretty confident.
How has your company been negatively impacted by California’s rollout?
California’s better than 50% of our business. I think 53%-54% of our total revenue is just in California. So, yeah, when California sort of takes a turn for the worse, it affects us in a really outsized way.
The difference has shifted more rapidly than I and my team expected toward these large-scale commercial cultivators and away from the smaller, midsize guys. And those guys do have some different expectations.
Maybe they’re buying from an ag distributor. They’re buying really cheap raw materials. They’re just buying bags of salt instead of premixed liquid nutrients. So, the market’s evolved.
We’re responding with innovation, but it caught us a little off guard.
Would Hawthorne ever consider entering any plant-touching businesses?
We have our research facility that we’re in the process of building up in Canada. Outside of that, I think it’s probably a bridge too far at this point.
But the legal landscape is changing so fast that I would never want to rule anything out. I have no idea how things are going to look in five years.
But you’ve done well, as you said, as a “picks and shovels” company.
If you look back, and to use the whole gold-rush analogy, which companies really came out of that that have been remembered for the past 150 years? Levi Strauss?
If we really want to push this gold-rush analogy even further, the mines can be dangerous places and you don’t always find gold. But you always pay for your picks and shovels before you leave town.
We’re pretty comfortable with the side of the business we’re on.
What challenges are unique to cannabis cultivators compared to traditional farmers?
Cannabis is a complex plant. It’s a really interesting, unusual plant that I think offers unique opportunities.
The reality is a high percentage of this marketplace is being grown indoors. Not in a greenhouse – indoors.
So, when you’re having to completely master the environment, humidity, temperature, light levels, controlling pests, controlling CO2 and nitrogen levels, it’s a really complicated thing when you’re completely in control of the environment.
It gives you a high degree of precision if you’re competent. But it also gives you a million ways to screw it up.
This interview has been edited for length and clarity.
Bart Schaneman can be reached at email@example.com