GrowGeneration: Why I Got Back In

Core Viewpoint - GrowGeneration Corp. (NASDAQ:GRWG) is being highlighted as a potential investment opportunity despite its current challenges, including declining revenue and lack of profitability. The stock is considered a Top Pick again due to its liquidity, strong balance sheet, and potential benefits from changes in cannabis regulation [2][3][9]. Financial Performance - For Q1, GrowGeneration reported revenue of $47.9 million, which was at the high end of the guided range of $45-48 million, but this represented a 16% decline year-over-year. Adjusted EBITDA was worse than expected at -$2.9 million [6]. - Analysts had projected 2024 revenue to be between $205-215 million, with adjusted EBITDA ranging from -$2 million to +$3 million. Post-report, projections have been adjusted to a revenue decline of 7% to $210 million and an adjusted EBITDA of -$2 million [6]. - For 2025, revenue is now expected to rise 7% to $225 million, with adjusted EBITDA remaining at $4 million. The adjusted EBITDA margin is low at 2%, compared to 8% in 2021 [6][14]. Market Position and Analyst Coverage - GrowGeneration is part of the New Cannabis Ventures Global Cannabis Stock Index and has been included in the Q3 rebalancing, indicating decent trading volumes and market interest [4]. - The number of analysts covering GrowGeneration is relatively low compared to larger multi-state operators (MSOs), with only 2 analysts providing coverage for 2025 estimates [17][18]. Stock Valuation and Outlook - The stock trades below its tangible book value, with a market cap of approximately $132.5 million, which is about 92% of its tangible book value. The company is debt-free and had cash reserves of $31 million at the end of Q1 [14]. - The current ratio is high at 4.8X, indicating strong liquidity. The enterprise value is about $71 million, which is nearly 18 times the projected adjusted EBITDA for 2025 [14]. - The stock has declined approximately 97% from its peak in early 2021 but has held above key support levels, suggesting potential for recovery if market conditions improve [20]. Regulatory Environment - Changes in cannabis regulation, particularly the potential rescheduling from Schedule 1 to Schedule 3, could positively impact GrowGeneration by improving the financial health of its customer base, although this is not guaranteed [9][14].