We recently compiled a list of the 11 Best Cannabis Stocks To Invest In. In this article, we are going to take a look at where The Scotts Miracle-Gro Company (NYSE:SMG) stands against the other best cannabis stocks to invest in.
The history of cannabis cultivation in America dates back to the early colonists, who grew hemp for textiles and rope. The plant was also widely used as a patent medicine during the 19th and early 20th centuries, described in the United States Pharmacopeia for the first time in 1850. Several political and racial factors led to the criminalization of cannabis in 1937 with the passage of the Marijuana Tax Act, but its legal status is now finally changing in many places.
READ ALSO: 20 States with the Highest Weed Consumption in the US
Cannabis Industry in the United States
The United States of America is the country that consumes the most weed in the world. As we mentioned in our article – 30 Cities with the Highest Weed Consumption in the US – the American legal cannabis industry fared well in 2023 as legal sales across the 38 states that allow some form of regulated marijuana reached $28.8 billion, a 10.3% increase from the previous year. Meanwhile, the legal cannabis industry also added 22,952 new jobs last year – a sign that the national business climate has somewhat stabilized following the turmoil of the previous two years. According to the 2024 Vangst Jobs Report, there were over 440,445 jobs supported by legal cannabis nationwide as of early 2024, an increase of 5.4% from 2023. The increasing legalization of cannabis and rising acceptance of its use for medical purposes are the key factors fueling the industry. Growth is also expected to come from new markets. One such example is Nebraska’s vote in favor of legalizing medical marijuana last month.
As of the writing of this article, 24 states have legalized recreational weed in America, in addition to the District of Columbia. However, possessing or selling marijuana remains a crime under federal law, punishable by prison time and fines.
Major Blow to the US Cannabis Revolution
In a significant setback for America’s legal cannabis industry, Florida voters rejected a ballot measure to legalize recreational marijuana in November. The measure, known as Amendment 3, got 55.9% support, failing to meet the required 60% threshold. This was despite historic levels of funding, a rigorous advertising campaign, and even an endorsement from President-elect Donald Trump.
Florida, with its population of 20 million people, is already home to the country’s largest medical marijuana market, boasting an annual revenue of $2 billion. The Sunshine State is also a popular tourist destination (especially during spring break) and attracts more than 140 million tourists every year. If Amendment 3 had been passed, Florida was expected to become a $6 billion cannabis market by 2026.
Through the Smart & Safe Campaign, Florida’s cannabis companies and individual donors collectively contributed more than $150 million to get legalization enacted into law, with most of it coming from the largest medical marijuana operator in the state. On the other hand, Florida Governor Ron DeSantis, who aggressively campaigned against Amendment 3, spent an estimated $50 million of taxpayer money on radio and television ads to successfully convince enough voters to reject the measure. Meanwhile, hedge fund billionaire Ken Griffin also came out against legalization and donated $12 million to the Vote No On 3 campaign.
This setback inevitably had an impact on cannabis stocks, which witnessed a downturn following the news of the rejection. Amplify Alternative Harvest ETF, the first US ETF to target the global cannabis industry, has fallen by almost 30% since November 4, closing at $2.33 on December 13, 2024.
Florida voters will now have to wait for two more years before cannabis legalization can get back on the ballot.
A farmer standing in a lush field of vegetables that has been enhanced by the company’s hydroponic products.
Our Methodology
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 11 companies operating in the cannabis sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best Cannabis Stocks According to Most Hedge Funds.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 28
The Scotts Miracle-Gro Company (NYSE:SMG) is the world’s largest marketer of branded consumer products for lawn and garden care. The Ohio-based company has applied its expertise in horticulture and gardening to develop innovative technologies and solutions specifically tailored for cannabis cultivation.
In Q4 of 2024, net sales of The Scotts Miracle-Gro Company (NYSE:SMG) rose 10.7% YoY to $414.7 million and surpassed the consensus estimates of $393 million. The uptick was due to higher sales in the US consumer division, where sales went up by 54% to $309.7 million, driven by the normalization of shipment timing. However, the company still ended the quarter with a loss of $244 million, though it was much better than the $468.4 million loss it suffered in the same period last year. Moreover, it ended the fiscal year 2024 with adjusted EBITDA growth of 20%, finishing at $539 million, despite a lawn and garden market that was down overall.
The Scotts Miracle-Gro Company (NYSE:SMG) has been facing several challenges over the last few years, including high debt and an unsustainable cost structure due to a decrease in demand after the pandemic. Consequently, the company has made some hard decisions to right-size its business and cut over $400 million in operating expenses. These decisions included mass layoffs and the closure of distribution facilities, leading to a loss of talent and hindering the company’s ability to innovate, which is crucial given the shifting market dynamics.
The Scotts Miracle-Gro Company (NYSE:SMG)’s $1.5 billion investment into its Hawthorne segment has proven to be a very costly affair. In 2023, Hawthorne’s revenue fell dramatically, and the business reported a loss of $50 million. However, SMG announced in its Q4 2024 earnings call transcript that it has managed to dismantle Hawthorne to make it a much smaller and more profitable business, while also reinvesting $100 million into its brands, sales force, supply chain, and innovation.
Shares of The Scotts Miracle-Gro Company (NYSE:SMG) were held by 28 hedge funds in the IM database at the end of Q3 2024, making it the Best Cannabis Stock According to Hedge Funds.
Overall, SMG ranks first on our list of the best cannabis stocks to invest in. While we acknowledge the potential for SMG to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.