The Scotts Miracle-Gro Co. plans to spin off its cannabis unit, Hawthorne Gardening Co., into a stand-alone operation – a move company executives believe will make the entity “more valuable.”
That’s an about-face for Scotts CEO Jim Hagedorn, who has said he’d like to retain the division as part of the parent company despite the volatility of the marijuana sector, according to Green Market Report.
But with Hawthorne’s earnings before interest, taxes, depreciation and amortization (EBITDA) expected to be about $20 million this year, the Ohio-based company’s leadership determined that its cannabis arm would fare better on its own.
“This is not like we’re looking to get rid of it,” Hagedorn told analysts Wednesday during the company’s earnings call.
“We’re looking to focus our investments in the best configuration possible for our shareholders.”
Hawthorne, which entered the cannabis sector in 2014, appears to be stabilizing.
Although revenue dropped 35% to $52 million in the first quarter, executives attributed the decline to the company eliminating distribution operations, which have lower margins.
Separating the companies could protect Scotts from the volatility the cannabis industry experiences while providing Hawthorne with tax benefits and increased credit opportunities.
The company’s board must approve the move, Hagedorn said, noting that assets could be moved within two months.
“Moving Hawthorne out of Scotts Miracle-Gro is better for everyone,” said Chris Hagedorn, who serves as general manager at Hawthorne and, in November, was appointed executive vice president and chief of staff at the parent company.
“We and our banks think it would make it more clear what our equity represents and could expand our price-to-earnings multiple.”
Scotts trades on the New York Stock Exchange as SMG.
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