Private equity-backed hydroponic equipment manufacturer and distributor Hydrofarm plans to go public next year as the legal cannabis industry expands in North America, the company's CEO told Real Money.
Hydrofarm CEO Peter Wardenburg did not share any specific timing on the company's IPO, but said prospects remain strong for its core business of indoor gardening and hydroponic equipment sold through its customer base of 1,500-plus retailers in North America.
"There is a lot of investment capital out there -- one thing that's unique about us is that we really are the pick axes and shovels of the cannabis industry," Wardenburg said. "A lot of cannabis investments to date have been touching the plant or in other aspects of the industry. Everyone across the country needs our equipment. We're not a single category supplier. We feel like we're in a good spot for an IPO."
Petaluma, Calif.-based Hydrofarm has not yet hired any bankers to underwrite its expected initial public offering on the Nasdaq.
Growth has accelerated in recent years to sales of more than $250 million in 2017, up from about $150 million-$160 million in 2010, he said.
About 70% of the company's revenue is related to the cannabis business, up from about 50%-60% a few years ago.
Ahead of its IPO, it is currently working with financial advisors to raise additional private capital to invest in more acquisitions and growth, according to a statement from a spokesperson. The company declined to provide further information.
In 2017, Serruya Private Equity, along with Hawthorn Equity Partners and Broadband Capital Investments, took a majority stake in Hydrofarm for an undisclosed price. A Serruya spokesperson did not reply to an email seeking additional comment on its role with Hydrofarm.
"As cannabis laws have evolved by state, there's been a dramatic upward pull in our business," Wardenburg said. "Our products are necessary to growing cannabis in a controlled environment."
The company remains bullish on growth in Canada and California where adult use sales are ramping up. In Canada, Hydrofarm is already three times the size of its next competitor as a wholesale hydroponic supplier.
While there has been a temporary reduction in demand in California for hydroponics equipment due to a backlog of grower licenses caused by regulatory issues, Hydrofarm remains best-positioned to capitalize on the long-term growth it sees in California, Wardenburg said.
"The California market is now stabilizing and we anticipate an acceleration of new licenses which will drive increased demand for our products," he said.
The company is now more than 40 years old. It is a specialist in hydroponic equipment, lighting, and other gear, offering 5,000 items to wholesalers including
Amazon.com, Ace Hardware, and many others.
The company competes with Scotts Miracle Gro (SMG) and its Hawthorne unit, and remains independent.
"A lot of the suppliers that have been out there want their products to be offered independently," he said. "We've had 25-year relationships with our vendors and customers, offering our style of solutions and choice. That's how we've rolled all these years...That's where Hydrofarm is strong. We have the platform (via nine warehouses) to serve the North American market."With New Jersey, New York and other states moving to beef up medical and adult use programs, the increased availability of cannabis will boost demand for growing equipment, he said.