We recently compiled a list of the 10 Best Marijuana Stocks To Buy According to Hedge Funds.In this article, we are going to take a look at where The Scotts Miracle-Gro Company (NYSE:SMG) stands against the other marijuana stocks.
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. After an eventful 2024, the industry is expected to flourish even further. According to a report from the wholesale marketplace LeafLink, retail sales of cannabis reached a record $2.8 billion in October 2024, up 6.2% from last year. The data revealed that America’s total retail cannabis sales for this year are expected to be in the proximity of $32.6 billion.
The US legal weed 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.
Perhaps this year’s most positive news for the country’s legal cannabis sector came in April, when the Drug Enforcement Agency announced that it would act on the Biden administration’s call to reclassify marijuana from a ‘Schedule I’ drug, which includes heroin and LSD, to a less tightly regulated ‘Schedule III’ drug, which includes ketamine and some anabolic steroids. The decision marked a major policy shift by the federal government and while it would neither make the substance legal nor decriminalize it on a federal level, it would loosen quite a few restrictions around it and add fresh arguments for supporters of ballot measures seeking to legalize cannabis in states where it is still illegal. The process is lengthy and complex and will stretch well into the next year, but as the DEA finalizes its review, stakeholders from across the industry are closely monitoring developments.
Another encouraging development came in the form of a tweet from President-elect Donald Trump, in which he expressed support for a recreational cannabis legalization ballot initiative in his home state of Florida. He also backed up the marijuana industry’s access to the banking system and the ongoing federal cannabis rescheduling process. Whether this support will actually translate into action when Trump takes office for his second term remains to be seen.
However, 2024 ended with a slightly sour taste in the mouth of America’s cannabis stakeholders, as Florida’s cannabis legalization ballot measure failed to pass, despite historic levels of funding and a rigorous advertising campaign. This was a major blow to the industry as the Sunshine State was expected to become a $6 billion cannabis market by 2026, had Amendment 3 succeeded in meeting the required 60% threshold.
The setback inevitably impacted 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 sector has fallen by over 31.6% since November 4, closing at $2.27 on December 24, 2024.
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.
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 Marijuana 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).
A farmer standing in a lush field of vegetables that has been enhanced by the company's hydroponic products.
Topping our list of the Best Marijuana Stocks According to Hedge Funds is The Scotts Miracle-Gro Company (NYSE:SMG) – 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.
The Scotts Miracle-Gro Company (NYSE:SMG) reported a revenue of $414.7 million in its Q4 of 2024, up 10.73% YoY and beating the analysts’ estimates by over $15 million. The growth was mainly 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, its Hawthorne segment’s sales decreased by 46%, primarily driven by Hawthorne’s exit from the distribution of third-party brands and a decline in sales from its professional horticultural lighting business. 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.
Despite the uptick in revenue, The Scotts Miracle-Gro Company (NYSE:SMG) 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. The company 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. As a result, it has had to make 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.
Notably, The Scotts Miracle-Gro Company (NYSE:SMG) managed to deliver on its target of generating over $1 billion of free cash flow over two years with more than $580 million generated this year on top of nearly $440 million last year. It utilized this free cash flow to return value to shareholders through its quarterly dividend and increased balance sheet strength by lowering debt by $390 million. Liquidity also remained strong with nearly $1.2 billion in borrowing capacity and $70 million of cash on hand.
Overall SMG ranks 1st on our list of the best marijuana stocks to buy according to hedge funds. While we acknowledge the potential of SMG as an investment, 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.
