Scotts Miracle-Gro looks to exit cannabis bet after boom-and-bust cycle: WSJ

More than a decade ago, Scotts Miracle-Gro (NYSE:SMG) Chief Executive Jim Hagedorn launched a bold expansion into cannabis cultivation supplies, creating Hawthorne Gardening to spark growth beyond the company’s lawn-and-garden roots. He kept the Scotts name off the venture, translated instead into “Hawthorne,” to avoid spooking investors and customers wary of ties to marijuana.

For years, the gamble appeared to pay off, The Wall Street Journal reported Wednesday. As more states legalized cannabis, Hawthorne grew rapidly through acquisitions, becoming the dominant supplier of hydroponics, nutrients and equipment. Scotts (NYSE:SMG) invested nearly $2 billion, and its stock soared above $250 in 2021, a pandemic-era high.

But the boom collapsed. Overproduction left growers with excess inventory, wholesale prices plunged and Hawthorne’s revenue sank.

Regulatory barriers added to the pain. Cannabis remains a federally restricted substance, preventing operators from claiming normal business deductions and keeping margins razor-thin. One economist said the industry has shifted from “high-risk, high-return” to “high-risk, low-return,” with many businesses failing and the illicit market regaining ground.

Hagedorn has lobbied Washington for reform, even pitching President Trump’s advisers on easing federal restrictions. While the Biden administration floated rescheduling cannabis, progress stalled.

With no policy relief in sight, Scotts (SMG) is retreating, the Journal reported. The company transferred its Hawthorne Collective investment arm to a partner earlier this year and is seeking buyers for Hawthorne Gardening, though it hopes to retain the option of reentering if federal legalization arrives.

What began as Scotts’ (SMG) boldest growth play is now being unwound, a cautionary tale of a mainstream company chasing the cannabis boom only to be caught in its bust, the Journal reported.