Scotts Miracle-Gro Co. is preparing to separate its cannabis-focused subsidiary, Hawthorne Gardening Co., into a fully independent company—a decision executives believe will enhance its financial value.
This marks a departure from the previous stance of Scotts CEO Jim Hagedorn, who had favored keeping Hawthorne within the parent company despite the marijuana industry’s instability, according to Green Market Report.
With Hawthorne’s earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to reach approximately $20 million this year, Scotts’ leadership determined that the business would operate more effectively on its own.
“This isn’t about offloading the division,” Hagedorn told analysts during an earnings call. “It’s about structuring our investments in the best way for shareholders.”
Hawthorne, which entered the marijuana industry in 2014, appears to be stabilizing despite a 35% drop in first-quarter revenue to $52 million. Executives attributed the decline to the company phasing out lower-margin distribution operations.
Separating the two businesses could insulate Scotts from the volatility of the marijuana sector while giving Hawthorne potential tax advantages and better credit access.
The move still requires board approval, and assets could shift within two months, Hagedorn said.
“Operating Hawthorne as an independent company benefits everyone,” said Chris Hagedorn, general manager of Hawthorne and recently appointed executive vice president and chief of staff at Scotts. “We and our financial partners believe this will clarify our equity position and potentially enhance our valuation.”
Scotts Miracle-Gro is publicly traded on the New York Stock Exchange under the ticker symbol SMG.
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