GrowGeneration Corp. Q4 FY2020 Earnings Call

Good morning. My name is Joana and I will be your conference operator today. At this time, I would like to welcome everyone to the GrowGeneration Corp. Fourth Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Michael Salaman, you may begin your conference.

Thank you. Good morning. My name is Michael Salaman, Co-Founder and President of GrowGeneration. At this time, I would like to welcome everyone to the GrowGeneration fourth quarter and full year 2020 earnings conference call. With me this morning is Darren Lampert, our CEO and Co-Founder; Monty Lamirato, our CFO; and Tony Sullivan, our Chief Operating Officer, who will all be participants on our call this morning. After our management remarks, there will be an analyst Q&A session. As always, we expect to make forward-looking statements this morning, but I want to caution that our actual results could differ materially from what we say here. Such statements can be identified by terms such as believe, expect, intent, and may. You should not place undue reliance on forward-looking statements as actual results may differ materially from these forward-looking statements. We do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued yesterday as well as risks and uncertainties included in the section under the caption Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with the SEC and any subsequent Form 10-Qs and Form-8Ks filed with the SEC. Following prepared remarks today, we will open the call for questions. I also remind everyone that today's call is being recorded and an archive is available on our website later today. The hydroponic industry that we serve has gone through monumental changes in 2020 and 2021. Legislation is opening more states to grow more plants on the national level. All eyes are focused on Washington as they seem to be making it easier for people to cultivate plants legally and obtain the ability to bank safely and nationally. These actions will help contribute to statewide economies, providing jobs and revenues going forward. GrowGeneration sells products for the growers, from small craft growers to large MSOs to build sustainable, standardized, and profitable hydroponic operations. Our leadership in the industry comes from our relentless focus on customer service, delivering end-to-end solutions for large commercial operators. We lead by having fully stocked hydroponics garden centers, investments in technology; supply chain, omni-channel solutions, and the employment of the largest contingent of grow pro professionals. GrowGen's multi-sales channel platform, focus on the acquisitions of the best of breed hydroponic operations, and delivering end-to-end solutions for our commercial customers is working as we continue to grow our business with a relentless focus on execution and financial discipline. I will now turn the call over to Darren, who will present our full year 2020 results.

Thank you, Michael. Good morning and welcome to our full year 2020 earnings call. Before I begin with my prepared remarks, I would like to thank each and every one of our staff and customers for their hard work, dedication, and loyalty. I also would like to take this time to thank Monty Lamirato for his service, hard work, and dedication as our CFO who is retiring at the end of Q1 2021. The company has announced Jeffrey Lasher as Monty's successor, who brings many years of public company CFO experience with both West Marine and Crocs. GrowGen has had a transformational year in 2020. As we continue to outpace our guidance, we are increasing fiscal year 2021 revenue guidance to $415 million to $430 million and increasing adjusted EBITDA guidance for 2021 to $48 million to $51 million. The company is providing first quarter 2021 revenue and adjusted EBITDA guidance of $86 million to $88 million and $9 million to $9.5 million respectively. The company is also increasing its guidance to reach over 60 garden centers and over 100 garden centers by 2023. The company generated revenues of almost $200 million in 2020, a 143% increase year-over-year, with a 63% increase in same-store sales. Adjusted EBITDA was $19.2 million for full year 2020 versus $5.3 million for full year 2019, an increase of 264% year-over-year or $0.44 per share basic for full year 2020 versus $0.16 per share basic for the same period last year. We added 14 new stores in 2020 to our 52 hydroponic garden centers across 12 states. Today, we have over 100,000 walk-in customers per month to our hydroponic garden centers. Our e-commerce channel grew over 123%, and our commercial division, which now has over $49 million in sales, grew at 188%. Our private label initiative is now well over $10 million in purchasing in the first quarter 2021. We plan to derive a projected 10% of revenue from our private label. We acquired two of our industry's top selling product brands: Char Coir. Both of these proprietary brands are expected to contribute well over $10 million each in revenue in 2021. In addition, on March 19th, 2021, the company purchased the business-to-business ERP platform, Agron.io, a leading agricultural portal that allows commercial growers to manage their purchasing and logistics in one platform. Our best-in-class staff is now close to 600, with over 500 of our teammates experienced grow pros. We have created the largest sales team of hydroponic product specialists in the country. Our steadfast focus on rapid strategic growth in key markets, both organically and through acquisitions, has resulted in our record revenues and EBITDA. With 800,000 square feet of retail and warehouse space, GrowGen is building the largest hydroponic garden centers in the U.S. that service commercial, retail, and craft growers. Income from store operations was $32.3 million for the full year 2020 versus $11.9 million for the same period last year, an increase of 171% year-over-year. Income from store operations as a percentage of revenue was 16.7% for the full year 2020 compared to 14.9% for the same period last year. Our commercial revenues for the full year were $49 million, a 188% increase year-over-year, and our e-commerce revenue finished 2020 at $10.6 million, an increase of 123%. Our online division transactions were up almost three times to over 17,000 transactions compared to 6,300 in 2019 and attracted over 1.2 million unique visitors to growgeneration.com. We continue to focus on margin expansion strategies that include furthering the deployment of more private label products, acquisitions, proprietary products, and driving more efficiency at the purchasing level as we continue to scale and grow top-line revenue. Store operating costs as a percentage of sales was 9.7% for the full year 2020 compared to 12.7% for the same period last year, an improvement of 24% year-over-year. Corporate payroll and general and administrative expenses, excluding non-cash operating expenses, as a percentage of revenue was 7% for the full year 2020 versus 8.5% for the same period last year. We expect new acquisitions and new store openings to continue through the remainder of 2021 and continue to drive growth and help us to achieve our planned 60-plus locations in 2021. GrowGen has a tremendous team of essential employees who have made a commitment to our company and customers, and I cannot be any prouder. I'm inspired by their efforts and dedication, as they have worked tirelessly to service our customers and communities. I will now turn the call over to Tony Sullivan, our Chief Operating Officer, who will brief everyone on our key operating initiatives executing the full year 2020 and then to our CFO, Monty Lamirato, who will provide more financial details on our full year 2020 results.

Thank you, Darren. We had another successful year with record financial results. We are very proud of our team's continued growth, execution, and performance in the full year 2020. As stated by Darren, we currently operate 52 of our locations across 12 states. Our staff is now around 600 across our multiple divisions: hydroponic garden centers, e-commerce, and commercial. Let's take a look at some key operating initiatives. We'll start with acquisitions and integrations. In 2020, our company purchased a total of 14 locations and we have already purchased 14 locations in Q1 of 2021. The company also completed the acquisitions of two leading product companies Canopy Crop Management in December of 2020, and another acquisition in March of 2021. Both companies support our important private label strategies moving forward. GrowGen has developed a SWAT team approach to acquisitions and integrations of companies we are purchasing. We have a very methodological approach that includes inventory valuation and analysis, onboarding personnel, and point of service, POS, computer training. Our proven process allows us to close multiple transactions in any given month and book revenue on the day of closing. At the same time, we help those companies leverage and scale to increase sales and efficiencies over time and become a part of our GrowGen model. We have developed a real estate and two-year growth strategy that is delivering multi-channel supply chain for direct fulfillment; product transfers to any GrowGeneration location, and infrastructure to support our growing private label business. Our supply chain currently spans 800,000 square feet of retail and warehouse space across 52 locations and 12 states. Today, we operate distribution and fulfillment out of a 60,000 square foot location in Sacramento and 40,000 square feet in Tulsa, Oklahoma. On March 9th, we announced the addition of a total of 122,000 square feet; 52,000 square feet in Downtown Los Angeles and 70,000 square feet in Rancho Dominguez, California that will serve as distribution and fulfillment locations for the company. We are in the process of building several additional locations that will serve as fulfillment centers, including 25,000 square feet in Phoenix, Arizona; 58,000 square feet in Medley, Florida; and we expect these locations to be opened by summer of 2021. As for omni-channel and the new website, at growgeneration.com, we are currently testing buy online pick up in store; pick, pack and ship; and curbside pickup solutions as we wrap up the final development and launch of our new site. In 2020, growgeneration.com had 17,000 transactions versus 6,300 in 2019 and attracted over 1.2 million unique visitors. In addition, as stated earlier, we just completed the acquisition of Agron.io, a dedicated B2B site to better serve our rapidly growing commercial base. Let's take a look at private label. Our newest product offerings are exceeding expectations, and our expansion is well underway, with customers purchasing over $10 million in private label purchases in the first quarter of 2021. We have developed private label products that now include ion lighting, Sunleaves powder nutrients, an additive line; Optilume bulbs, blueprint controllers and timers, grow access pots and containers, harvest edge pruners, trellis, and other garden accessories. Our proprietary brands now include Power Si and a line of premium cocoa products that will all add to our private label offerings, SKU rationalization, and store planogram project. As a retailer, both online and offline, SKU rationalization and store planning remain our constant sources of focus and improvement. We have selected one of the industry's top partners in the space and we anticipate significant learnings and data to improve our inventory turn, optimization, profitability, and in-store consistency. We have 16 product departments and we have redone all of our major categories, subcategories to ensure that we have the best analysis and visibility moving forward. Our mission as a company is to offer the widest selection and the best of breed hydroponic products in the market so that GrowGen becomes the best one-stop shopping destination for all types of growers. And at this time, I'm going to turn it over to Monty Lamirato to give our financial highlights.

As Darren previously announced, net revenue for the full year 2020 was approximately $193 million compared to approximately $80 million, an increase of 143%. The increase in revenues is due to: one, the addition of 14 new retail stores opened or acquired during 2020 for which revenues were $31 million; two, 11 stores opened or acquired at various times during 2019 that were open for all of 2020 which had an increase in revenues of $51 million; three, same-store sales increased 63% comparing 2020 to 2019, which had an increase in revenues of $28 million; and four, an increase in our e-commerce sales of $5.9 million from 2019 to 2020 and revenues from our Canopy Crop recent purchase in December of 2019 of $300,000. Gross profit was $51 million for the year ended December 31, 2020 as compared to $22 million for the year ended December 31, 2019, an increase of $29 million or 132%. Gross profit as a percentage of sales was 26.4% for the year ended December 31, 2020 compared to 27.6% for the year ended December 31, 2019. The slight decrease in gross profit margin percentage in 2020 was due to a greater percentage of commercial and e-commerce revenues as a percentage of total revenue, both of which have lower margins than in retail sales. Commercial and e-commerce represented 31% of all revenues for the year ended December 31, 2020 compared to 28% of all revenues for the year ended December 31, 2019. Operating expenses are comprised of store operations, primarily payroll and utilities and corporate overhead. Store operating costs were approximately $18.7 million for the year ended December 31, 2020 and approximately $10.1 million for the year ended December 31, 2019, an increase of approximately $8.6 million or 85%. The increase in store operating costs was directly attributable to one, the addition of 14 new retail stores opened or acquired in 2020; and two, 11 stores opened or acquired at various times during 2019 that were open for all of 2020. The addition of the stores, as discussed above in the revenue section, was the primary reason for the increase in store operating costs. Store operating costs as a percentage of revenues were 9.7% for the year ended December 31, 2020 compared to 12.7% for the year ended December 31, 2019, a 24% reduction. Corporate overhead, which comprised general administrative costs, share-based compensation, depreciation and amortization, and corporate salaries, was approximately $23.9 million for the year ended December 31, 2020, compared to approximately $10.3 million for the year ended December 31, 2019. Corporate overhead was 12.4% of revenues for the year ended December 31, 2020, and 13% for the year ended December 31, 2019. Corporate overhead excluding non-cash share-based compensation, depreciation, and amortization was 7% of revenues for 2020 compared to 8.5% of revenues for 2019. Net income for the year ended December 31, 2020, was approximately $5.3 million, compared to net income of approximately $1.3 million for the year ended December 31, 2019, an increase of approximately $4 million. The company had significant operating loss carryforwards from prior years, which were used to offset taxable income in 2019, thus resulting in no provision for income taxes. Adjusted EBITDA for 2020 was $19.2 million or $0.44 per share basic compared to $5.3 million for 2019 or $0.16 per share basic. As of December 31, we had working capital of approximately $223 million. The increase in working capital from December 31, 2019, to December 31, 2020, was approximately $194 million and was primarily due to the net proceeds from the sale of common stock of $207 million and exercise of warrants totaling approximately $3.8 million. On December 31, 2020, we had cash and cash equivalents of approximately $178 million. I would now like to turn the call back over to Darren for some concluding remarks before the Q&A.

Thank you, Monty. GrowGeneration recorded a record year of increased revenue and we achieved record adjusted earnings. We believe our company has now built the foundation for tremendous growth for the next several years to come. Our store acquisitions and new store openings continue to drive growth as the stores we continue to deliver double-digit same-store sales results year-over-year. We plan to own and operate over 60 locations during the year 2021. We plan to break the 100-store mark by 2023. Today, we own and operate 54 including our two LA locations currently under development. GrowGeneration has built a national scalable supply chain for the agricultural and cannabis industry. Our leadership position is driven through our corporate mission statement to be the largest chain of hydroponic garden centers in North America. We continue to invest in our supply chain and technology, creating more efficiencies across all departments, providing our customers with the products they want, when they want it, and when they need it. We look forward to continuing to provide guidance as needed, and we're excited to share our successes with our shareholders, our management team, and partners. Now, we would like to turn the call over to analysts for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. First question comes from Brian Nagel at Oppenheimer. Please go ahead.

Good morning. Congratulations on a great year and a quarter. Well done. And also Monty, best of luck in your retirement.

Thank you. Appreciate it. I'm looking forward to it.

It's been a pleasure. I have a few questions. First, in last night's release, you significantly raised your 2021 sales guidance following several recent upward revisions. Can you clarify the balance between a more optimistic outlook on organic growth and acquisitions as you consider that guidance?

Hey, Brian, this is Darren. We ended last year with a run rate of about $280 million based on 2020 figures. Currently, we're projecting same-store sales growth in the high teens to 20 percent. This year, we have successfully acquired $75 million worth of stores and products, reflecting a 12-month total. Our current run rate is estimated between $390 million and $400 million. Our guidance for this year is $415 million to $430 million, which factors in additional acquisitions. We believe we are on track for several more acquisitions, especially in products. As we continue to expand this business, increase our store count, and develop new locations, we anticipate raising our guidance further this year. However, we are maintaining a cautious approach until we finalize acquisitions and open these new stores, as well as assess the integration process with the 14 stores we've already added to our portfolio this year.

That's great. Very helpful. Regarding your second question about guidance, it seems that the sales and adjusted EBITDA guidance suggests an adjusted EBITDA margin exceeding 11.5%. While we understand you haven't provided long-term guidance, could you share your thoughts on where that margin might ultimately reach? More importantly, what are the key factors that could drive gains over $11.5 million?

One thing we look at right now, Brian, is our private label. Private label will drive margin expansion. We are forecasting 10% this year. Like every company you're seeing in the retail space, there's certainly congestion and supports right now. We have $5 million to $10 million of products sitting at the ports right now. We've had a wonderful adoption in the first quarter of our private label. But again products are sitting at ports, hindering products to get in. We feel 100% comfortable with our guidance, which is really equating to over $40 million of private label products this year. As we told Wall Street, margins on private label products are in excess of 50% right now. So, we do believe it will be driving about 200 basis points on the margins this year. And we do believe as GrowGen continues to scale private label, it will continue to scale margins.

Appreciate all the color. Congratulations. Best of luck here. I'll turn it over.

Thanks, Brian.

Next question comes from Mark Smith at Lake Street Capital. Please go ahead.

Hey guys. I wanted to talk a little bit about the recent acquisition of the Agron business. Can you walk us through your expectations on gross profit margins within that business?

I'm going to turn this over to Michael.

Yes, Agron was an acquisition, Mark, to basically provide the commercial customer a portal to optimize their planning, purchasing, and forecasting for their supply chain. We realized very early on that the commercial customer needs a different curation of product; they need to be handled at a much higher level from a customer service perspective, with different sizes of products and different types. What we said in our release is that we expect this year for Agron to contribute about $20 million in additional accretive revenue, but it's going to bring so much more to the company. It's a technology platform. It's an ERP platform. It's giving more transparency to our commercial customers on their purchases, tracking history of what they're buying, accounting, invoicing. So, it's a real ERP platform that has been successfully deployed for many years. We think under GrowGen's management and strategies that we've already employed, the integration of this technology with our tremendous growth in our commercial division is going to be really powerful. So, we see this as a strategic acquisition, in addition to the accretiveness of the revenue that Agron brings to the company.

Okay. And then as we look at growth, you guys have done a great job on acquisitions here and the first quarter. Can you talk about organic store openings in 2021? Maybe what you have some leases signed planned right now or how many stores maybe you expect to open this year?

Currently right now we're working on building out two distribution hubs/retail stores commercial fulfillment in LA; one is Downtown LA, which is about 55,000 square feet, and the other one is up in Long Beach, which is 70,000 square feet. We look for these two operations to be operational this summer. We're also building out right now Miami, Arizona, and also Brewer, Maine. These are existing locations that we are moving into larger headquarters. We will be signing leases in the next few months in the New Jersey area and also in the Mississippi area and also in Illinois. So, that's really what we're targeting this year. We're still waiting on clarification from New York as everyone has been reading New York is on the verge of going adult use. But once again, when states go adult use, there is an extremely long lead-time before licenses are issued, before the laws are written. You're seeing that New Jersey right now, you're seeing in South Dakota, Mississippi. When laws change, it could be up to two years before you see plants in the ground and buildings starting. So, the one thing from GrowGen is we take an extremely conservative approach. We will not build stores until we understand the licensing within the given states. The amount of licensing that are given out, whether there's craft licensing, whether home-grower rules. So, we will know much more in the next 90 days. We do believe in New Jersey, New Jersey right now has 12 licenses on the medical side. They're talking right now about additional 24 licenses with craft licensing. We're still looking for a little more clarification and some ink on the Bill that's going to end up into law.

Okay, great. And then the last one for me, I just wanted to clarify on private label sales, kind of are you expecting 10% kind of private label mix this year?

We are and we do believe that's going to be the bottom number of it. The exciting part for GrowGen right now, our private label sales. We will be our second largest distributor this year and manufacturer. So, we do believe that GrowGen sales will be the second leading product suite that we sell this year. So, as our reliance upon some of our distributors and manufacturers lessen, we were at 51% in 2019; we dropped to 41% in 2020. And we see that mix dropping into the low to mid 30s this year. So, we're quite excited about that. We think it's a huge move in the right direction for GrowGen becoming more reliant upon GrowGen in the distribution of manufacturing sectors out there.

Excellent. Sounds great. Thank you guys.

Next question comes from Andrew Carter at Stifel. Please go ahead.

Hey, thanks. Good morning. I wanted to start off and kind of circle in on you mentioned the boat stuck at the port. It's kind of a pretty onerous input cost inflation environment. You got a good position in the value chain to absorb it, but I don't know how you're thinking about that first as a headwind. I don't know if manufacturers are trying to pass along pricing. Is it an opportunity for private label and do you see any risk of potentially not being able to fulfill demand whether it be getting boats out of China or just scarce freight here in the U.S.?

One of the impacts of port and supply chain disruptions has been beneficial for GrowGen in some respects. Our strong leadership position in the industry has allowed us to attract a significant number of customers during the port congestion and COVID-19 situation, especially since we have about $80 million in inventory at our warehouses. We are capable of shipping across the country, with distribution networks in place. As the industry evolves from small home growing to large-scale agriculture, GrowGen is fully equipped to support every grower. We have preemptively managed the challenges posed by port disruptions and COVID-19. Our warehouses are well-stocked, we have in-depth product knowledge, and established relationships with every vendor nationwide. Although we are currently experiencing port disruptions affecting our private label products, we have strategically prepared and have substantial inventory arriving at the beginning of 2021. Therefore, we are quite confident about our product offerings and our ability to serve all of our customers. Regarding inflation in shipping costs, we are experiencing it and are passing some of it along, although we are absorbing a portion of it. Nevertheless, we remain confident in our margin expectations and guidance for 2021.

Got you. Speaking to EBITDA, how should we view the free cash flow from the store? It seems there aren't many new store openings; it looks more like upgrades and possibly maintenance. I know that your working capital continuously decreases, and you’ve leveraged the national network. What are the factors we should consider regarding free cash flow for the year? Thanks.

We have been very successful in increasing the revenues generated through each store in all of our acquisitions, with commercial sales playing a significant role. Additionally, we have managed to enhance our margins thanks to our purchasing power, which grows every year and every month as we acquire more stores. This purchasing power enables us to access better pricing, which directly benefits each store, leading to improved free cash flow and margins that, in turn, positively impact our cash flow. You may have noticed that same-store sales have increased significantly without any notable rise in store operating costs. This means we are achieving substantial leverage from the revenues generated through the stores without a major increase in the normal operating expenses. Consequently, the operating income from store activities, as a percentage of revenues, continues to improve.

Thanks. I’ll pass it on.

Next question comes from Eric Des Lauriers at Craig Hallum Capital Group. Please go ahead.

Thank you for taking my questions. I wanted to focus on the impact of the larger stores for a moment. Can you discuss how we should expect those to influence gross and EBITDA margins? On the revenue side, we anticipate a nice lift due to the larger footprint, but I am curious about the cost side compared to your overall portfolio.

Yes, Eric, we see it to be similar. You know, we opened Tulsa, Oklahoma a year ago, first year in Tulsa, Oklahoma, with it in excess of $15 million in business, really with margins in the high 20s. So we see no difference between any of our distribution hubs that we're opening. Certainly, the cost of building these hubs are incrementally more than building a 10,000 to 20,000 square foot, but on the profitability side of it, between distribution, commercial fulfillment, online fulfillment, and also store operating, we believe that these companies will be as profitable, if not more than our smaller stores.

It's great to see the progress on the private label front, and the strong guidance is encouraging. You mentioned more product acquisitions are on the way. Could you share how you approach expanding your portfolio? Are there specific categories you're focusing on or avoiding, and are there any that you're aiming to improve margins on more than others? Thank you.

Eric, we bought Char Coir and PowerSi, as we've announced, these are great additions to our private label strategies. They are proprietary products. These are products that have been in the environment, the growing environment, and they work. They are disruptive in a lot of ways in terms of their performance. The unique part of GrowGen is that we can see sales trends before the rest of the market can, and we could use this data to make strategic acquisitions of these products. So, we're leveraging the scale of GrowGen. And because we're in 52 locations across 12 states, we see different environments; we see what's working. And we can take advantage of that from an acquisition strategy perspective, that's exactly what we did with PowerSi. It's exactly what we did with Char Coir; we saw these two products start to really grow within the portfolio of GrowGen stores. And we said, these are very interesting trends. And we identify them as really products that would be great additions to our private-label strategies. So we're able to leverage data to make really great decisions on which products we're going to go after from an acquisition perspective.

Thank you. The next question comes from Mike Baker at D.A. Davidson. Please go ahead.

Thanks, guys. So, I wanted to ask one sort of micro-related question, and I'll ask them both at the same time. From the bigger picture standpoint, you talked about more licenses, as an example in New Jersey. Can you just talk about what you see in terms of states adding not just more states, adding the ability for these products, but actually adding more licenses to be a little bit more equitable from a social dynamic? And what you're seeing there and how that impacts you? And then from a company-specific standpoint, I'm wanted to ask about your online business; about 6% of sales now, and I think it was actually even down as a percent of sales for the year. But you are making some changes to the website? How do you think about your online penetration going forward? How important do you think that will be? Or is this more of a retail concept rather than an online concept? Thanks.

Yes, this is Darren. I will begin, and then I'll hand it over to Michael for the online segment. We believe there is a significant change occurring in laws nationwide, particularly with the MORE Act and some developments from governors across the country. GrowGen is confident that we will see more open licensing throughout the nation. We are observing positive trends on the West Coast, in Oklahoma, and with proposals from Mississippi. This points to an increase in craft growing and expanded licensing as federal legislation evolves. We anticipate seeing progress with the SAFE Act this year and are hopeful for additional advancements. In states like New Jersey and New York, there is a clear movement toward broader licensing opportunities, which will lead to increased cultivation and, subsequently, more business for GrowGen. A noteworthy point is that the cannabis market, currently valued at $20 billion, is projected to reach $100 billion by 2030, indicating substantial growth in the next nine years. GrowGen is growing at a rate that outpaces the market, suggesting a very promising decade ahead for us. Looking back three years, we have grown from a $30 million company in 2018 to a projected $415 million to $430 million this year. With additional acquisitions and clearer regulations from various states, these figures could improve. This demonstrates nearly 14 times growth in revenue over three years, within an industry laden with regulations. Our business retains a significant competitive edge over smaller stores. We can establish operations in new states within three to six months of regulatory changes we are comfortable with, which presents tremendous growth potential for GrowGen. Additionally, we are witnessing a transformation in the industry, particularly in controlled environmental agriculture, such as indoor growing and technological solutions. GrowGen is well-positioned to understand and implement these innovations, transitioning away from smaller hydroponic stores. We are now a solution provider, building and servicing facilities. There are evolving products that enhance energy and water efficiency, such as indoor hydroponics that can save 90% of water usage. What we're seeing is the rise of a new sector: technology-driven controlled environmental agriculture. The perception of GrowGen as merely a retail store is outdated; we are leading as a solution provider. We anticipate significant technological advancements as the industry expands, including urban growing. However, this landscape is complex, necessitating growth, technology, and skilled staffing. With that, I will pass it over to Michael to discuss the online aspect further.

Yeah, Michael, we're building a brand. We are the destination for hydroponic equipment. And as evidenced by the amount of traffic our website is getting, we attracted 1.2 million unique visitors, we transacted from 6,300 transactions last year to 17,000. And that website also has influenced the number of walk-ins. As Darren reported, we're now at over 100,000 walk-ins per month to a GrowGeneration location. The strategy for our online is omni-channel. We're building a symbiotic relationship between the online transactions and our stores. So, it's an integrated solution; it's an omni-channel solution, giving our customers optionality if they want to order online, great. We will drop ship it right to their grow. If they want to order online and pick it up at any one of our locations, great; we give our customers that capability as well. But it's about giving customers the options on how they want to interact with the company. And we're certainly giving our customers flexibility to transact in any way that they desire to transact with the company. Further, we identify Agron as an acquisition because we realized that large commercial cultivators purchase differently. It's a business-to-business platform, a different curation of products. And they had a really good platform that we felt we could build upon and really enhance it with our commercial operation. So, that's a separate online strategy, which we're going to be integrating and taking that platform on and growing it from where they are today and bringing our commercial division and integrating those two entities. But it's really about building a brand and giving customers optionality on how they want to transact with the company.

Yeah. That makes sense. And thank you for those very complete answers. One thing I did want to follow-up with on Darren, and you sort of touched on it, I think it's really interesting, so more of a point or I guess I'll try to weave it into a question. But the idea that it's not just growth in the cannabis market, but it's hydroponics within the cannabis market that can help drive your total addressable market. So, I guess the question to turn into a question, any idea of the share of cannabis that is done through hydroponics right now and what that could go to over time? Thanks.

There are many perspectives to consider, Michael. For instance, the wine and spirits market is nearing $1 trillion and continues to grow since prohibition. Currently, we operate in 12 states, leaving us with 38 more to expand into, along with ongoing efforts in the existing states. Looking at GrowGen's portfolio, we project $425 million this year at the midpoint. We believe the East Coast will eventually reflect the opportunities found on the West Coast. The new states we enter will allow us to lead and dominate the market. While we face competition in the 12 established states, we're purchasing top competitors. As for the industry’s growth in both cannabis and urban gardening, we anticipate taking a prominent role. Climate change and outdoor growing challenges will persist, with ongoing water issues in California. In Europe, there’s a shift toward indoor growing with numerous greenhouse developments, which isn’t as prevalent here. We're starting to see issues from climate changes this year, impacting places like Texas and California due to fires which will pose sustainability challenges. The controlled environmental agriculture sector is still in its infancy, and the concept was not well known until recently. Developing sustainable greenhouses involves managing airflow, fertigation, benching, and lighting systems, which are complex. We are committed to providing solutions and hiring top talent for GrowGen. Our team has grown to 600 with zero turnover, as we are focused on building a future-ready company and a scalable brand. GrowGen is becoming recognized, and we receive daily inquiries for new store openings. Many customers travel long distances to reach our stores, showing demand for expansion. Looking ahead, we envision hundreds of GrowGen locations catering to both cannabis and home gardening needs. Our recent customer segmentation study revealed that cannabis growers often purchase products for home gardening. Thus, we see significant synergies between the products used in cannabis cultivation and those in the home gardening market.

Yeah. I appreciate all the color. That's a very complete answer. I appreciate it. Thank you.

You're welcome.

Next question comes from Scott Fortune at ROTH Capital Partners. Please go ahead.

Yeah. Good morning. Thank you for the questions. Can you provide a little color on the M&A transaction side; kind of what type of deals you're still seeing? Are there more and more independent mom and pops looking to sell and the valuations there? Just kind of continue to see as acquisitions play a big part in growth for kind of evaluations or what type of deals you're seeing from that standpoint?

Yes, Scott, we anticipate the next two years will be significant for acquisitions, although we expect that pace to slow afterward. Currently, we have another $200 million in acquisitions planned over the next two years. After that, we'll focus more on organic growth with GrowGen, concentrating on acquisitions in the 12 states where we already operate to enhance our portfolios there. Moving into 2023 and 2024, our strategy will shift to expanding into new states, providing solutions for growers as we continue to see growth in our same-store sales across the existing 12 states.

Okay. I appreciate that. And then to kind of expand upon the last question a little bit, your commercial and e-com is about 30% of business, it's only moved up a little bit. It sounds like that will stay flat. But are you seeing more vertical farming on the technology side? You mentioned that it seems as interstate commerce comes on board and these larger commercial growers will look to grow outside, but they all need more indoor facilities; they're more high quality consistent grows from that standpoint, kind of talk to us on the next technology generation of vertical farming, stackable units, LED kind of technology that's being adopted?

Yeah. We're putting together, Scott, end-to-end solutions for all types of vertical farming, whether it's cannabis or produce. Agricultural vertical farming, the technologies, and the products that we offer are certainly applicable across both of those vertical markets. And it really starts with lighting, then it goes to vertical benching. Control systems, as Darren mentioned, this whole new industry, this technology of controlled environmental agriculture, that's what GrowGen delivers as a solution provider, fertigation, dosing, environmental control, controlling the inputs that standardization creates profitable growth for our partners. That's what GrowGen delivers day in and day out, and we do that today. And we're looking at technology. We're looking at products that provide automation to create more efficiency, so that our partners are more profitable. And that's the leadership. We are thought leaders in that area. And we're building out this end-to-end solution. And we are constantly looking at the best of breed products that we can package as a one-stop shop singular solution. Right now, there's a lot of fragmentation in this area; we believe and GrowGen has put together a solution that we think can be scaled, standardize and deliver what our partners, our growers are looking for, which is standardized scalability and sustainable automation that allows their growers and their operators to deliver return on investment and the highest yields to deliver the greatest product, and that's what GrowGen's mission is. That's our mission, and that's what our growth grows and our commercial division. And that's what we're focused on day in and day out.

Next question comes from Aaron Grey at Alliance Global Partners. Please go ahead.

Thanks for the questions, and congrats on the year, guys. Great to see. So actually, I want to piggyback off that last question in terms of the commercial business and growth there. So we'd love to get an update in terms of where you guys are standing with some of the business with the multi-state operators, and how those efforts there are continuing to grow. Right, because you guys obviously do a phenomenal job in the markets that are more mature and have a lot of licenses. But just as you're talking about those East Coast markets, maybe evolving from limited license to more broader license markets, how are you looking to also capitalize on the limited license markets and expanding that market share with the MSOs and then kind of give us some of the pitch that you guys are giving to MSOs in terms of ways to start working with GrowGen, and then who they might be working with otherwise if they're not working with you right now? Thanks.

So Aaron, our commercial division this year did $48 million versus $17 million, up 189%. We're trending to $100 million this year. And the exciting part is the growth in terms of the number of commercial customers, which is both MSOs and single state operators. We've gone from 271 in 2019 to 691 in 2020. Today, as of March Q1, we're servicing almost 1,300 commercial customers. So that number constantly is growing. And the reason why we're attracting the MSOs is that we’re one of the few companies that has the infrastructure, the supply chain, the inventory, but it's the right inventory, the inventory that these large commercial companies are seeking; it's business-to-business; it's GrowGen investing in technology like Agron, in order to make it easier for them to purchase and optimize their supply chain. So, that's what GrowGen delivers, and that's why you see this kind of numbers, which is across the board, more commercial customers, more revenue that we're gaining more market share that we gain market-to-market, and it's expanding, because there are more licensed growers, there's more expansion, these MSOs are adding on, which is all incremental business that GrowGen is gaining.

Wonderful color there. Thanks for that. And the second question for me. So as you guys continue to grow and scale and also become less reliant on those bigger manufacturers, like you guys mentioned from 50%, 40% looking for that to go low to mid 30s, I think you said. Just how do you think about potential changes in the competitive landscape, right? So as you guys continue to grow and become less reliant, right, maybe they start to feel a little bit more, and maybe there might be some pricing pressure as they try and get some more market share back. So just interested in terms of how you think about that competitive landscape and how it evolves over the next 12 to 18 months, as you continue to grow and become less reliant on those manufacturers? Thanks.

Yes, Aaron, I think saying we are less reliant is not accurate. We aim to sell top-quality products that our clients and customers need. As long as our manufacturers and distributors keep innovating and providing high-quality products, this industry has various segments. One of these segments is Home Grow, which is definitely less demanding compared to what you see from single-state operators and large MSOs. There are many divisions within this industry right now, some of which are more focused on home markets that are not using as diverse products as the large MSOs and single-state operators. When I entered the industry in 2014, Grow facilities were chaotic, with plants on the ground and people running around watering and feeding them, with no standardization at all. Today, if you visit a Grow facility, you'll be amazed at the complexity of the operations. The primary inputs for large MSOs and single-state operators now are manpower and electricity. Currently, there is a significant shift towards seeking more sustainable growing products. For GrowGen, as long as high-quality products are available, we will continue to purchase them.

Right. Great. Thanks, and best of luck in 2021.

Thank you, Aaron.

Thanks, Aaron.

Last question comes from Glenn Mattson at Ladenburg Thalmann. Please go ahead.

Hi, everyone. I appreciate you taking my question. Regarding Agron, I find the acquisition quite interesting and logical. I'm curious about how it's different from your usual acquisitions of stores or private label products. You mentioned it being a platform with a service aspect, so I would like to understand the size of this business and the expected timeline for closing the deal. You also mentioned a projected revenue of around $20 million this year for GrowGen. Can you provide insights on the valuation metrics for this acquisition? Additionally, is the revenue fully from products, or is there a service component included? Lastly, concerning the platform, will there be opportunities to monetize it in the future, or are there already avenues for that? Any further details would be appreciated.

Hey, glad to start with the transaction having closed. It closed Monday of this week. We certainly see it scalable with our commercial division. Once again, as we've said, we're bringing best of breed products to our customers. We're a solution provider. We look at the Agron.io website as a solution provider for our commercial customers. It's giving them an end-to-end look into inventory, into purchasing to manage what they're purchasing. It’s certainly for some further complex individuals with technology from our individual stores or individual management team. Right now it is expected to do $20 million in additional revenue; they have different clientele than our commercial team. I mean, we do believe that we will continue to grow this business and it will be a tremendous add-on to our commercial team, and we’re taking to our commercial customers.

That's helpful. And I think color on the valuation and how you came to that valuation?

We are currently acquiring assets at favorable prices, around three to five times EBITDA, which is quite appealing. This acquisition fits well within that range and we believe it will be a fantastic addition to our organization. You will notice that the Agron website is expected to thrive, particularly given our distribution capabilities nationwide. Agron has previously sourced products from our suppliers and manufacturers, and they will now have the opportunity to distribute through our warehouses and distribution centers as well.

Great. Okay. Thanks for color. Good luck this year.

I'd like to thank our customers, shareholders, and each and every employee at GrowGen. They have worked tirelessly this year through COVID. And again, I couldn't be any prouder of our team and what we've accomplished in 2020, and what we've accomplished in the first quarter of 2021. When I look at the cannabis space, a year in the cannabis space right now is 10 years in most industries. The growth at GrowGen has just been phenomenal. And the question that I'm always asked is, how can you handle this growth? And it seems to give pause to some of the investment community. We have a team at GrowGen that works tirelessly. And I couldn't be any prouder. We've handled and integrated each and every acquisition. Tony Sullivan, our new Chief Operating Officer, who's been with us for about a year and a half now has done a tremendous job integrating transactions and bringing this staff up to speed on the philosophies of GrowGeneration. I want to also thank Monty Lamirato. Monty started with us; we were at a $7 million run rate. He leaves us four years later at over $400 million. He's just done such a tremendous job mentoring our staff, and mentoring our team, and he's going to be missed as we move into the next era of GrowGen. But when we started back in 2014, this industry was just emerging. We're in an industry right now that will be the industry of this century. We see such tremendous growth for so many years. We see tremendous research going into the plant. And we do believe that with loosening of legislation, you will see much more consumption in the future, much more plants being grown both on the cannabis side and the fruit and vegetable side of it. I couldn't be any prouder to be at the helm of GrowGeneration. It's been a wonderful eight years, and we think this is going to be such a tremendous decade, no less century for this company. And I want to thank our shareholders and just let you know that we work hard every day. This team is up early in the morning and works late at night. And we look forward to sharing our successes in our first quarter with you in the middle of May. Thank you so much. Stay safe and get your COVID shots.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.