We recently published a list of 7 Best CBD Stocks To Invest In Right Now. In this article, we are going to take a look at where The Scotts Miracle-Gro Company (NYSE:SMG) stands against other best CBD stocks to invest in right now.
An essential component of medical marijuana, CBD is the legal, non-psychoactive compound that is used to treat chronic pain, anxiety, and other ailments. Though initially met with skepticism, medical cannabis is rapidly gaining traction in the United States and as of the writing of this article, the use of marijuana for medical purposes is legal in 39 states, in addition to the District of Columbia. The latest state to join the growing list was Nebraska, which voted to legalize and regulate medical cannabis in November 2024.
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Despite the growth, 2024 was overall a very turbulent year for the American cannabis sector. The decriminalization process is going slower than expected and legalization ballot measures in Florida, and South and North Dakota failed to pass. Wholesale prices are also at record lows and despite all the efforts, the legal industry still faces stiff competition from the unregulated black market. As a result, the American Cannabis Operator Index, which tracks the market value of firms in the industry, has fallen by over 50% since a year ago, and more than 90% since its peak in April 2019. A recent survey by Whitney Economics revealed that only 27.3% of cannabis operators nationwide are profitable. According to the US Chamber of Commerce, 65.3% of all small businesses in the US are profitable, so the cannabis sector is trailing far behind the national average.
A recent encouraging development came when President-elect Donald Trump publicly expressed support for recreational cannabis legalization efforts in his home state of Florida. He also backed up the industry’s access to the banking system and the ongoing federal cannabis rescheduling process. Whether this support will actually translate into wide-reaching cannabis reform remains to be seen. However, it puts to rest any previous concerns that Donald Trump could actually cancel the rescheduling process altogether if he gets re-elected since the process is under the purview of the US Department of Justice.
The US Cannabis Council, expressing its optimism for the sector under Trump’s presidency, stated:
“The cannabis community has every reason to be optimistic with President Trump returning to the White House. He has endorsed the SAFE Banking Act and reclassification of cannabis. We look forward to working with his administration to advance meaningful federal reform.”
That said, the withdrawal of Matt Gaetz, a vocal proponent of federal legalization, as Trump’s nominee for attorney-general after allegations of sexual misconduct was highly discouraging for the country’s cannabis advocates. Moreover, a great deal of reforms will still have to get through both the House and the Senate, which will require some level of bipartisan cooperation.
As for the federal cannabis rescheduling process, the Drug Enforcement Administration held preliminary hearings on the matter in December and these are expected to conclude in March. Perhaps the most significant relief from the change will come in the form of tax reform. Currently, companies selling cannabis cannot deduct normal business expenses from their tax bill, costing them more than $2.2 billion in extra taxes than what would be paid if they were treated as mainstream businesses. If federal rescheduling happens, it is expected to improve the overall cash flow of the industry by $3.1 billion in 2026, helping improve the profitability of cannabis companies and giving their investors some much-needed optimism, even if Trump’s other promises go up in smoke.
Methodology
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 7 companies operating in the cannabis sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best CBD Stocks According to Hedge Funds.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A farmer standing in a lush field of vegetables that has been enhanced by the company’s hydroponic products.
The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 28
With 28 hedge fund investors tracked by IM at the end of Q3 2024, The Scotts Miracle-Gro Company (NYSE:SMG) tops our list of the Best Marijuana Stocks to Buy Now. The Ohio-based company is the world’s largest marketer of branded consumer products for lawn and garden care and has applied its expertise in horticulture to develop innovative technologies and solutions specifically tailored for cannabis cultivation. SMG is also the owner of The Hawthorne Gardening Company, a leading provider of nutrients, lighting, and other materials for the indoor and hydroponic growing industry.
The Scotts Miracle-Gro Company (NYSE:SMG) has been facing several challenges over the last few years, including high debt and an unsustainable cost structure due to a decrease in demand after the pandemic. Consequently, the company has made some hard decisions and cut over $400 million in operating expenses to right-size its business. SMG has also been working to strengthen its struggling Hawthorne segment to help it overcome industry challenges and these efforts are starting to pay off. The company recently announced that it has managed to dismantle Hawthorne to make it a much smaller and more profitable business, while also reinvesting $100 million into its brands, sales force, supply chain, and innovation.
The Scotts Miracle-Gro Company (NYSE:SMG) reported a revenue of $414.7 million in its Q4 of 2024, up 10.73% YoY and beating the analysts’ estimates by over $15 million. The company also managed to over-deliver on its target of generating over $1 billion of free cash flow over two years with more than $580 million generated in 2024 on top of nearly $440 million the year before. It utilized this free cash flow to return value to shareholders through its quarterly dividend and increased balance sheet strength by lowering debt by $390 million.
Moving beyond monetary profits, The Scotts Miracle-Gro Company (NYSE:SMG) also remains committed to sustainability and collaborates with the National Fish and Wildlife Foundation to conserve monarch butterflies and other insect pollinators in 24 states in the US. The company also recently partnered with the Central Ohio Beekeepers Association and established a new bee yard at their Marysville, Ohio campus.
Overall, SMG ranks 1st on our list of best CBD stocks to invest in right now. While we acknowledge the potential for SMG to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.