The Scotts Miracle-Gro Company (Scotts) is forming a subsidiary to assist the cannabis industry.
On Tuesday, August 10, Scotts announced the formation of The Hawthorne Collective, which it says will focus on strategic minority investments in the cannabis industry that The Hawthorne Gardening Company is not currently pursuing.
Money for Cannabis
According to a press release, The Hawthorne Collective will provide a $150 million convertible loan to Toronto-based cannabis investment and acquisition firm RIV Capital.
RIV Capital is a cannabis-focused investment and acquisition company with a 13-company portfolio that spans various segments of the cannabis supply chain.
Scotts says the investment in RIV Capital is a six-year convertible note that will accrue 2.03 percent in interest for the first two years and includes additional follow-on investment rights.
Under the terms, The Hawthorne Collective and Scotts would own approximately 42 percent of RIV Capital upon conversion.
“The addition of The Hawthorne Collective into our portfolio allows us to explore and pursue new opportunities in an industry that is poised for significant growth in the years ahead,” says Chairman and CEO Jun Hagedorn. “With full appreciation of current banking and legal requirements, The Collective is designed to allow us to eventually participate directly in a larger marketplace as the legal environment changes over time.”
In Toronto Stock Exchange and Canadian regulator filings, RIV Capital indicated it would designate funds from The Hawthorne Collective for “general corporate and other lawful purposes.”
According to Scotts, such purposes may include additional investments and acquisitions.
Following the close of the transaction, expected in Q4 2021, The Hawthorne Collective will use RIV Capital as its preferred vehicle for future investments.
Hagedorn says that by making a minority, non-equity investment in RIV Capital, the initial transaction will not have a significant near-term impact on financial performance.
While the approach means Scotts will employ capital that won’t be available for near-term investments with a more immediate return, Hagedorn says they are confident their RIV Capital partners and long-term approach will end up driving meaningful value for their shareholders.
“Indeed, the growth of The Hawthorne Gardening Company over the past six years has generated significant shareholder value,” says Hagedorn. “It has also allowed us to develop a rare level of expertise and insight regarding the cannabis space without being involved in the plant-touching aspects of the industry. That is why we are beginning to invest in other areas of the industry through The Collective while continuing to pursue near-in strategic acquisitions to fold into the existing Hawthorne Gardening business.”