We are hearing from all sorts of big-box retailers this week and it's imperative that you know that these stores are taking huge and devastating share from the smaller companies in their verticals. Everything from Best Buy (BBY) , recommended again, to Home Depot (HD) to Target (TGT) took customers away from others in a hefty way. Most companies don't like talking about it. The last thing you need is a congressional hearing about how you destroyed otherwise healthy two to 10-store chains.
But every once in a while you hear about a chain that owns a vertical. We saw it in Boot Barn (BOOT) , which offered a wide assemblage of boots unlike any other. We saw it in Canada Goose (GOOS) , which owned the warm weather category until it simply couldn't maintain the growth as other stores knocked it off. Of course there's Lululemon (LULU) , the high-priced casual wear store with a cult following. With the exception of the latter you had to hop on the train and off it for fear of duplication or saturation.
I want to nominate a new one today, a company that we saw just last night, GrowGeneration (GRWG) , which makes all the tools and product you need to grow cannabis.
I am a gardener. If you have ever been one you know that you go to a store with garden goods, mainly what's known as flats of plants, and then you plant them. There's not going to be anyone to help you, though. Believe me, it's tough enough, say, to get someone who can tell you that you might need tomato baskets or stakes. If you want seeds, forget about it, the big boxes carry the major company seeds and that's it. I find the gardening stores and the big box stores with gardening centers disappointing especially since they all tend to rely on Bonnie Plants, which is a very iffy brand that never gets rated as such.
Which brings me to GrowGeneration. I rarely circle back to a guest who was just on, but when it happens I mean business, This is a $770 million operation that is growing like a weed and making money. It has 28 stores and had same-store sales that were up 49%. Even with the Home Depots of the world putting up amazing traffic numbers, that's insanely good.
But that's nothing to me. What matters is it is a specialized store chain catering to the growth of cannabis at a time when cannabis is being legalized and, more important, millennials want to garden. Why is this chain so special? Because of the runway. They have only a handful of stores in each legalized market. They want to almost double the store count in 2021 via purchasing -- there are 1,000 independents out there -- and opening their own large stores.
The stores have all the equipment, including the specialized lighting that you need to grow cannabis. You need help to make this crop. They have seasoned growers on staff as this ain't growing tomatoes or cukes where you put 'em in the dirt and they grow. I want them to put up their own large stores, not buy others, the way Home Depot or Tractor Supply (TSCO) did, the best analogues, but you can't be picky with a hyper-specialized store where you can put in your own private label product.
What's so special about these guys other than their incredibly long runway of building stores when many chains are already built out?
Three things: one is that the current crop of cannabis stocks truly is wanting. Tilray (TLRY) , Cronos (CRON) , Canopy Growth (CGC) , they have all cut the hearts out of shareholders. Only Green Thumb (GTBIF) really interests me.
Two, this company does not do Canada. It is in the U.S. only, which makes a ton of sense, and is, per se, a lot less sketchy.
Three, seven states have cannabis on the ballot in some way or another, legalization, recreational, all going the right way for GrowGeneration. That means seven states where there can be more growth. And, best of all, if the Democrats sweep, you have perhaps the best single stock in the market.
In the meantime, the downside is limited given how much white board space there is in the current states.
Again, it's rare that I go back to the well. The stock is up way too much. But they have already done a fundraising. There's a scarcity of a pick-and-shovel company that's like Tractor Supply, except for cannabis, and you can bet that the traditional garden stores do not want to touch this stuff either for the professional or the amateur. Given the move you can buy some and then let it come in, but this story has more to it than just about any retailer out there except the bone-crushing majors.
