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Why GrowGeneration Fell 40% After Earnings: What To Know

Oct. 04, 2021 12:17 PM ETGrowGeneration Corp. (GRWG)56 Comments


  • GRWG reported strong quarterly results with 190% top-line growth.
  • Comparable sales were 60%, with the remainder of growth driven by external acquisitions.
  • The stock fell 40% since reporting earnings - I explain what's causing the stock price weakness.
  • I take a serious look at the bull case and explain the upside ahead.
  • Looking for a portfolio of ideas like this one? Members of Cannabis Growth Portfolio get exclusive access to our model portfolio. Learn More »

Female farm worker using digital tablet in greenhouse
The Good Brigade/DigitalVision via Getty Images

I have previously been a vocal critic of GrowGeneration (NASDAQ:GRWG). My main issues largely focused on some hairy connections regarding the management team as well as my confusion on why hydroponics stores

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (56)

The whole industry is an investment disaster. Hope for passage of the banking act to get a pop so owners can sell. Resting orders should be in place. Unexpected mergers and MSO buyouts could also provide an exit opportunity
What do you think of hydrofarm HYFM vs. grow generation???
Well that didnt work out so good did it."if GRWG maintains the current quarterly run-rate, then it should end the year with around $467 million in revenues." Now the midpoint of guidance is 442 million in revenues. And its only going to get harder here on out for many companies as 2020 fades into memory and the comps get tougher and tougher.
Cannabis Growth Investor profile picture
@Robert 7809591 Yes: the big question is why aren't they going to hit $467 million? As that implies sequential deceleration
@Cannabis Growth Investor The midpoint estimate per yahoo finance was 472 million. From reading articles it sounds like analysts included revenue from some acquisitions that were in process like HGS. I dont think that should be allowed.

"Full-year revenue guidance has been revised to $440 million to $452 million, following the termination of the planned acquisition of HGS Hydro. This acquisition was assumed to provide about $20 million of revenue for 2021."
@Robert 7809591 You seem to have emerged on this stock now that GRWG has been beaten up pretty badly. Are you planning to go short from here or are you seeing this as a buying opportunity? Maybe I missed your commentary previously, but I don't recall a whole lot being offered from/by you when the stock was flying high? Longer term 2-3 years out I think we'll be looking back on this as a great buying opportunity. Fed legalization will help and should get some momentum in 2022. The states are all gradually coming on board. I see Fed legalization as just a matter of time. Fed and states need the revenue. I started buying this stock in the $2's & $3's but have to admit I've been disappointed in the stock's descent since earlier this year. This is a great way to play the cannabis sector in IMHO.
Its a buy
I'm already receiving notices from Democrats about work on legalization/decriminalization. It seems like we're looking at 2022 for a GRWG (and industry-wide) catalyst...
@mwoo44 Legalization will be bad news for the U.S. MSOs for sure, but helpful to the Canadian producers. This of course assumes the high taxes don't kill the legal market. A risk for sure.
New Issue Stocks profile picture
@PhiChi incorrect.
I will forgo explaining because you need to do your homework.
I will say cannabis will remain a "controlled substance" regardless of "legalization."

@New Issue Stocks Give me a break. I didn't say it would be legalized. If it is, it will be bad news for U.S MSOs and positive news for the Canadian producers, that was the point. Could care less if it is legalized. No dopers on this end. Just traders
Glancing at my computer screen it appears GRWG is “Green” (positive) and swimming in a sea of Red (Down Market -350).

TLRY Reports tomorrow morning before the Open and has the potential to either “lift” the Cannabis Sector or drop it further. If TLRY surprises watch for GRWG to appreciate as well. Personally, I BOUGHT TLRY at $10.70 and GRWG at $23.40 this morning, specifically for the TLRY Report.

Wishing Well To Shareholders Of Both Companies!
@Retired One The Canadian producers without non Canadian earnings may not be profitable in your lifetime. The US MSOs are very different. GRWG is not a US MSO and their margins are bad and getting worse. Federal legalization would not be good for the MSOs. VRNOF has solid investment dynamics, but the stock keeps tanking.
@PhiChi Yes- the cannabis sector is in a brutal, extended, ravaging bear market efficiently destroying capital. Hot house flowers will try to jump up and down and wave their hands like this is actually a “bull market”. Don’t listen to their bull crap. Lots and lots and lots of tax loss selling is still in front of us for 2021. Hang onto your rear ends.
@andrewmills Common sense is good.
You would think that all this “Build Back Better” nonsense would include really meaningful cannabis reform. Imagine the tax money that could be garnered if cannabis was fed legal! Just the simple act of 280e income tax deduction easing would greatly help this sector. Not expected/ going to happen under this administration unfortunately. Once again, this sector is “AVOID”. Some cannabis stocks might go up, but it is a really tough environment overall.
Pot-related stocks are falling by the wayside as the Democrats focus on infrastructure before such issues as federal legalization/decriminalization. However, since Co.'s like HD likely won't seriously enter the space until legalization/decriminalization, GRWG (unlike the actual pot stocks) is at an advantage before legalization/decriminalization (and with strategic niche focuses thereafter). However, all that the retail investors (impacting pricing on stocks like this) generally know based on their beloved talking heads is that pot stocks are down and that no federal legalization/decriminalization will occur until some time down the line after the infrastructure bill gets through Congress. This stock should have its time in the sun again, but some patience will be necessary. In my opinion, it's a great value at this point.
Where is the profit margin?
GRWG's last earnings and guidance results in August did not deserve the reduction in share price we've seen. Way over sold. This company is getting very well set up for future success.
@sunk1putt oversold? Hmmm. Mr. Market does not share your view. This sector can go a lot lower- a lot. Bottom fishing is capital destruction risky.
To The Author: I thought GRWG dropped for the simple fact that they “Missed” analysts’ expected Earnings of .12 cents and only delivered .11 cents which is classified a “MISS”.

Add that to the fact that the General Market has been tanking due to concerns over Debt Ceiling, Inflation, National Budget, Covid Vaccines, Immigration, Afghanistan, Building Material Shortages, Consumer Product Shortages (think Thanksgiving/Christmas), China Real Estate Market and Tech stock drop (President Xi), NASDAQ Tech Capitulation, and I could go on and on (but I won’t, LOL).

It is a might unusual when a stock goes UP on a MISS, but this drop has been excessive and hinges on General Market conditions, IMHO.

Wishing Well To The Author And GRWG Shareholders!
Scary when 190% growth results in 40% haircut.
GRWG down another 5.6% more today with 3/4 of the trading day concluded. The trading volume is about nominal- no capitulation, no panic, just orderly enthusiastic and robust longs selling and shorties getting in some sales too. Probably best to buy oil and gas stocks until the cannabis sector rotates back in investor favor again - another 1.5 years to 2.5 years to go.
Shamanski profile picture
Hang on you think this sector with extremely low valuations and high growth is not going to go up for another 2 years !!!!!
Good luck with that. Stocks don't work like that buddy.
Good stocks don't stay down for ever, this is how you 3-5x.
@Shamanski I hear you brother- I am in btw and avg more as it makes sense. The thing you might not be getting is that the cannabis sector is in a horrible, brutal bear market. That is a fact. Based on historic trends for this still very new industry, it will be another 1.5 to 2.5 years before sector rotates back in favor. Overall stock market is down a bit from historical highs- but, what happens if it really starts to turn downwards? I mean by a lot, which many people think is going to happen. A lower tide lowers all boats- right? You are looking at a tough sector to pull gains from. Think about oil, gas, EV batteries, instead for now maybe? Crypto Alt coins are hot now. Watch cannabis sector for now, but don’t play the rationalize game of “it has too or it will go up (soon).” We are down here until at least early 2023 IMO. I have been saying this all year and have been right btw. So, there is that. Good luck to all.
Shamanski profile picture
Who cares about past cannabis bear markets, the fundamentals for these companies were completely different back then. They weren't that great, and the path forward much less clear.

Cheap growth never stays cheap that long. These things have been in a 6 month bear market, that isn't very long. Like I said the valuations are too low for the extremely high and profitable growth, add in easy visibility on an extremely large and increasing TAM and you have some of the easiest money in the market.
These stocks are an easy 3x in 12-18 months, growth is too high.
A great buy between $16-$18
@alnelson2004 - I would think that would be a fair price, but could go lower as we are in a cannabis sector bear market. Brutal. Don’t let the hot house flowers tell you otherwise.
Shamanski profile picture
The estimates and models are a total joke.
They are in 12 states, they will be in 30-40 states soon.
Look at all the states legalizing, AZ, NJ, NY, huge markets with FL, OH, and the entire North east to follow.
None of the "models" out there consider the massive TAM that gets increasingly bigger every year.
This is easy money, the US cannabis industry is one of the fastest growing industries in the entire world. I can't really understand why such massive growth is so discounted, but it is, and it is a big gift.
The opportunity for GRWG and the MSOs are the biggest in the market, for how long will people choose to ignore easy hypergrowth??
Investors are clueless to what is happening here. None of these stocks need Fed legalization in anyway.
@Shamanski "hypergrowth"? you mean hyperfail, grwg is down another 5% today.
Shamanski profile picture
That's the whole point, this is a massive misprice, the stock is detached from its fundamentals and growth outlook... People are judging this company/stock based on the movement of SP and not on its fundamentals.
GRWG will continue to grow at an extremely high rate, and they will continue to expand into new states and increase their margins, EBITDA, and income.

Most people out there can't see this extremely easy connection for some reason. When hypergrowth stocks detach from their fundamentals you get the biggest and best opportunities to make money.
@Shamanski The cannabis sector is in a brutal bear market. After awhile, even the better and best stocks get beaten down.
They need to grow that bottom line and rather than acquiring need to grow the business organically
Good stock- one of the better ones in this very tough sector. Even the better stocks can go down when the sector is out-of-favor as the cannabis sector is currently. Just look at today- another red day: A/D Line strongly for the decliners.

We have been in a horrible cannabis sector bear market since mid-Feb 2021. Not likely to end for another 1.5 to 2.5 years. The cannabis sector historically rotates bear to bull with the bull markets around 1 year duration. Cannabis commentators, hot house flowers and other newsletter publishing experts started talking the cannabis sector down in early /January 2021- and got what they wanted- a healthy, vibrant and enthusiastic bear market. Investors left - scared Neds and Nellies fled. Short sellers celebrated via Twitter and other social media. Those who stayed in became bag holders. Biden and Harris came out in early spring and said they (now) hated cannabis, which added to the sector downturn disaster. This was despite their promises of seeking legalization, or maybe just 280e tax regulation reform. The sector will come around again, but I would not step in until spring/ early 2023, after EOY 2022 season’s tax loss selling.
I was saying all this back in Feb-Mar 2021 and repeatedly post here and there to remind our cannabis friends. There will be a lot of tax loss selling this 2021 year. Crypto is the hot market attraction these days.
Good luck to all.
New Issue Stocks profile picture
@andrewmills A broken record, that is all I hear—just an opinionated person ranting his 10-year perspective. He's a Trumper and proud of it!

Once these stocks hit 2x sales next year, they will fly upward. Cannabis is the fastest-growing industry in the world.
If you listen to this guy, you will miss out on what this author has been saying.

It is his most significant conviction and largest investment for a reason.

It is obvious what is holding these stocks back.
Mutual funds can't buy them.
Banks can't own or lend or do any business with them.
Some brokers forbid them.
They thinly traded because they are UNDER OWNED and on pink sheets in Canada, for christ's sake!
The states still arrest people for buying, selling, or using.
They can't write off expenses because of 280e.
The states are taxing them heavily.
They are vertical operations in the state they sell.
The Democrats and Republicans hate each other.

I could keep going, but you get the drift.

Just buy the top 6 companies and wait five years. Everything mentioned above will go away, and everyone will want to own these stocks.
Jim Craddock profile picture
Rode this from $4 to $60, sold all. Back in now. If it goes lower, I will buy more.
@Jim Craddock yes - you likely will have to avg down to keep your loss within a manageable percentage. Careful as you likely know, “…falling knives can be very sharp.”
The Lawman profile picture
While GRWG is a buy, HYFM, that sells to GRWG, is a strong buy.
@The Lawman AGFY and UGRO are strong strong buys
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