Scotts Miracle-Gro is taking a major step in reshaping its business. The company plans to spin off its cannabis-focused division, Hawthorne Gardening Co., into a stand-alone entity. Leadership believes this move will unlock more value for shareholders, marking a shift in strategy from previous statements by CEO Jim Hagedorn, who had favored keeping the unit under the Scotts umbrella.
A Strategic Shift in Scotts’ Cannabis Play
For years, Scotts Miracle-Gro has been a key player in lawn and garden care. But in 2014, the company took a bold step into the cannabis sector by launching Hawthorne Gardening Co. The division focused on providing hydroponic equipment, lighting, and nutrients for marijuana cultivators.
Initially, the plan was to keep Hawthorne within Scotts despite the ups and downs of the cannabis industry. However, with earnings before interest, taxes, depreciation, and amortization (EBITDA) projected at $20 million this year, the company’s leadership saw a better path forward. Spinning off Hawthorne into its own entity could help the division operate with more financial flexibility and strategic focus.
“This is not like we’re looking to get rid of it,” Hagedorn emphasized during an earnings call. “We’re looking to focus our investments in the best configuration possible for our shareholders.”
Why Now? Market Realities and Financial Moves
Hawthorne has seen its share of turbulence, reflecting broader trends in the cannabis market. During the first quarter, the unit’s revenue dropped 35% to $52 million. But executives attribute much of that decline to eliminating lower-margin distribution operations rather than a fundamental weakness in the business itself.
By separating the two companies, Scotts aims to:
- Shield its core business from the volatility of the cannabis industry
- Provide Hawthorne with tax advantages and better credit opportunities
- Enhance clarity in how investors value Scotts’ stock
Chris Hagedorn, general manager of Hawthorne and now an executive at the parent company, believes the split will boost market perception. “We and our banks think it would make it more clear what our equity represents and could expand our price-to-earnings multiple,” he said.
What Happens Next?
The move isn’t final just yet. The company’s board must approve the spinoff before it moves forward. If given the green light, assets could be transferred within two months, making Hawthorne a fully independent business.
One key question is how investors will respond. Scotts Miracle-Gro, which trades under the ticker SMG on the New York Stock Exchange, has seen its stock impacted by the cannabis industry’s volatility. If the split goes smoothly, it could offer stability for Scotts while positioning Hawthorne for more targeted growth in a rapidly changing cannabis landscape.
Scotts’ Bigger Picture
Beyond this move, Scotts Miracle-Gro continues to focus on its core gardening and lawn care products, which have long been its bread and butter. As legalization expands, Hawthorne could find new growth opportunities on its own—free from the constraints of being tied to a traditional gardening company.
For now, all eyes are on the board’s decision and how both companies plan to operate independently in the months ahead.