During cannabis downturn, Scotts Miracle-Gro reorganizes acquired suppliers for

MARYSVILLE, Ohio (COLUMBUS BUSINESS FIRST) — During a lull in sales, Scotts Miracle-Gro Co. is rearranging and consolidating its cannabis industry supply business.

The reorganization will leave the division stronger when demand returns, executives said Tuesday. The Marysville company is closing one facility acquired last year, moving operations among other buildings, and terminating about 200 of the more than 1,500 jobs in its Hawthorne Gardening Co. Overall, the lawn and garden supplier employs 7,100.

“While the current market reality is frustrating, we’re not discouraged,” CEO Jim Hagedorn said. “We continue to believe in this space and its long-term potential.”

Hagedorn praised the Hawthorne team, led by his son, Chris Hagedorn, for seeing the coming downturn last summer and not panicking, but preparing to use the time to improve the business.

“Our business will be significantly stronger when the downturn ends,” Chris Hagedorn told analysts on a recorded call.

About 150 of the affected jobs are in Vancouver, Washington, a manufacturing and distribution facility acquired with the former Sunlight Supply in 2018. About 100 apiece remain at that facility and in a warehouse opened last year in neighboring Gresham, Oregon, spokesman Tom Matthews said. Terminated workers are being paid until April and receiving outplacement help.

Manufacturing for its lighting brands, including more advanced LEDs augmented by a January acquisition, is now consolidated in Temecula, California, significantly reducing expenses.

“For growers, lighting is where they spend the most money, and it is the category that has the biggest impact on their crop,” Chris Hagedorn said. It also creates a long-term relationship enabling Hawthorne to sell a wider variety of supplies.

Matthews summarized the moving parts:

• The facility acquired last August with HydroLogic Purification Systems in Santa Cruz, California, will close, and the manufacturing of water purification and reclamation equipment will move to a more advanced Scotts facility in Santa Rosa.
• A manufacturing and assembly line for lights moved to Temecula from Vancouver – which still has lighting R&D, manufacturing for plant trays and carbon filters, and administrative functions such as sales.
• East Coast distribution and fulfillment is consolidated in a larger warehouse in Phillipsburg, N.J., poising the company to serve a wider base of growers as states like New York and Connecticut progress toward legalizing marijuana. A warehouse in York, Pennsylvania, will be used for storage but no longer for distribution.

Although more states are launching cannabis industries, the largest market in California has suffered from over-production and a shortage of retail outlets. Growers have said taxes and the bottleneck are making it hard to compete with the illicit market.

The fall-into-winter first quarter is typically the slowest for Scotts; last year was the first first-quarter profit in company history. This year, Scotts had a net loss of $50 million on sales of $566 million. But the larger consumer gardening segment had its second-ever operating profit. Find the full results here.

Jim Hagedorn cautioned against short-term comparisons to the record quarter of one year ago. Sales and earnings seem to be resetting at levels well above the average in the four years before the pandemic, he said.

Scotts (NSYE: SMG) has a five-year goal to double its business to $10 billion in sales, and Hagedorn said Tuesday it has formed “an internal team” to study whether to eventually spin out Hawthorne.

“It will take a while,” Hagedorn said. “We don’t feel any pressure to lean one direction or another.”

Hagedorn and his siblings own about a quarter of shares, and have seen strong returns since the merger of Scotts and Miracle-Gro in 1984, he said. That family management of a public company confers an advantage.

“We take a long-term view and we’re not afraid to think like an activist and recognize the need to reimagine the company from time to time,” he said. “This is one of those times.”

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