Hawthorne, a subsidiary of Scotts Miracle-Gro focused on the cannabis industry, saw its sales decline during the fourth quarter of 2022.
Segment sales decreased 31 percent to $131.5 million, down from $190.6 million during the same period in 2021, which Scotts blamed on continued challenges in the hydroponic industry. The decline was further reflected in the company's outlook for its fiscal 2023. It now expects Hawthorne sales will be down between 20 and 30 percent compared to fiscal 2022.
"While Hawthorne continues to manage through a challenging market, we are committed to returning the business to profitability by the end of this fiscal year," said Scott Miracle-Gro CEO Jim Hagedorn.
In prepared remarks during Scott's fiscal first quarter earnings call, Hagedorn said Hawthorne will continue to focus on the cannabis non-plant-touching space and professional horticulture while leaning into its investment in RIV Capital, which he said will help make Hawthorne a "key player in the consumer and retail cannabis space in New York, projected to be the second-largest cannabis-consuming state behind California."
RIV is an integrated cultivator and retailer in New York that owns the Etain cannabis brand. Hagedorn said it holds one of 10 vertically integrated licenses that includes a growing and processing operation and four dispensaries. It's also building an indoor growing facility in Buffalo.
"From a regulatory perspective, New York has tripped over itself in developing and implementing rules which has prevented the market from reaching its near-term potential," said Hagedorn, according to a Motley Fool earnings transcript. "But let me make this clear. New York will become a monster market, and we'll see it through. There is progress and value in our investment with RIV. To summarize, we have adjusted the speed which we are moving forward in our strategic pillars."
Hagedorn also highlighted some research and development happening at his company. He said the cannabis R&D facility in Kelowna, British Columbia is running trials on lighting, nutrients, genetics, and other technologies to improve yields, quality, and energy efficiency. He said his company is performing similar work on hemp in Oregon, Florida and Ohio, where the company opened a controlled environment facility to supplement its greenhouses.
"We've continued to innovate with the WEGA LED lighting portfolio for indoor growers of vegetables, fruits, and flowers. WEGA is expected to surpass last year's unit sales in Europe and North America and is now one-sixth of Hawthorne's business," he said.