Good morning. Thank you all for joining us. My name is Brian Nagel. I'm the Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. This is day 3 of our 26th annual Oppenheimer Consumer Growth and E-commerce Conference. We very much appreciate you all tuning in. I'm pleased to announce or introduce our next presenting company, GrowGeneration. I've had the pleasure of covering and interacting with GrowGeneration now for a very long time. Very dynamic, interesting business model. We have two of the company's senior executives, Co-Founder and CEO, Darren Lampert, and CFO, Greg Sanders. Gentlemen, thank you for joining us.
Thank you, Brian.
Thanks, Brian.
We're going to structure this as an informal fireside chat with me asking questions and the GrowGen team responding to those questions. To the extent there are questions from the audience, just send them through the chat and we will be happy to work them into our conversation. Guys, I thought when we start, before we talk about specific dynamics at GrowGeneration, I'd love to just begin, kind of a theme we're having with this conference is just the overall health of the consumer, what you're seeing and any impacts lately upon the GrowGeneration operations from the health of the consumer.
Sure, Brian. One of the most important changes that you've seen at GrowGeneration over the past four years is that we're no longer primarily dependent on the retail consumer. Historically, investors viewed us as a hydroponic retail chain, serving hobbyist growers, small operators, and also the consumer. Today, our business is increasingly driven by commercial cultivation, wholesale distribution, proprietary brands, and B2B solutions. While broader economic conditions certainly impact spending behavior, our customers are focused on improving yields, lowering product costs, increasing efficiency, maximizing profitability. Our products, our proprietary products such as Drip Hydro, Char Coir, Power Si, directly help customers improve operating economics. As a result, we believe our business today is more resilient and less dependent on discretionary consumer spending than it was several years ago.
I guess the key takeaway, Brian, GrowGen has shifted from a consumer discretionary exposure toward the commercial solutions model, which is not as affected by today's economy.
No, it's very helpful, Darren. It's a perfect segue into the conversation on GrowGen. I've had the pleasure of studying very closely this transformation that's happening, which you've just alluded to, the transformation of the GrowGen business model. I'd love to go into more detail, especially for those who are maybe less familiar with the GrowGen story, particularly the kind of the new dynamics. Discuss the transformation you're undertaking. You're going from point A to point B, importantly where are you in this transformation, and as investors, how should we think about the financial ramifications of this significant transformation of the GrowGen model?
We started GrowGen back in 2014. I guess the business model and our contention back then was, as the cannabis business grows, that consumers are going to be growing plants in their backyard, cannabis plants. When we embarked on this incredible growth strategy, building GrowGen from a million-dollar business on the sales side of it in 2014, till we peaked out in about $425 million in 2021. We built from three stores, our initial three stores, we built that up to 65 stores, over a million square feet of space around the country, transacting over 100,000 transactions a month. As the dynamics of the industry changed so dramatically, we had to pivot. Over the last several years, really, we've transformed GrowGen from a retail-focused operator into a higher margin technology-enabled B2B platform. We reduced operating expenses significantly. We optimized our store footprint and inventory.
We dropped inventory from almost $130 million down to $40 million. We consolidated distribution. We strengthened our balance sheet. We invested in systems including CRM, ERP, WMS. We now have rolled out commercial portals that use our commercial warehouses to ship products directly. When you look at our remaining 19 locations around the country, down from 65, what you've seen really is they're more marketing hubs and distribution hubs, really, for our commercial customers as opposed to serving retailers. They're closed on weekends, 90% of them. What you're also starting to see right now is we've built this incredible commercial team at GrowGen and a technical team out there that's out on the street looking for business as opposed to waiting for business to walk into our stores. At the same time, we've built a portfolio of proprietary brands from under 10% back in 2021.
It now represents approximately 37% of cultivation and gardening revenue, year-end target of 40% this year. We believe that number probably goes into the mid-40s to 50 next year. Looking forward, our priorities are straightforward. We're continuing growing our proprietary brands, continuing to roll out new ones, and we believe a lot of them are in the early stage of launch. We're expanding our commercial market share. We're increasing wholesale distribution. We're growing our lawn and garden channels and specialty ag. We believe that vertical is incredibly powerful right now. The TAM on the lawn and garden and the ag space is far dwarfs what we have right now in the cannabis space. Cannabis still is our bread and butter and, again, it's growing. We're pursuing international opportunities.
We've recently signed some contracts to start delivering our products, just GrowGen proprietary products, into Canada, into Europe, into Latin America. We believe that'll be a fast-growing part of our business. We're deriving sustainable profitability and cash flow. We believe we're still in this early transformation, and you're starting to see it in our numbers. I guess key takeaways, Brian, we're becoming a branded product and solutions company opposed to just that typical retailer that's waiting on the consumer to walk into the stores. We couldn't be any more excited of the transformation. I still do believe that GrowGeneration right now is a stronger business than we were in 2021 when the stock was $60. Our proprietary brands are taking over the industry, and we've pivoted with the industry.
I think right now, when you look where we are, in such the early growth cycle of the cannabis industry, I think lawn and garden, I think specialty ag, and with the products that we're starting to bring into big box and to the distribution channels, I think you're going to see a different business going forward through to the rest of the decade and probably for many years to come.
That's very helpful, Darren. I want to make sure we understand clearly the difference in the consumer of GrowGeneration today versus the consumer back in the prior business model.
Yeah, I think, as we spoke, we had 100,000 transactions, again, I think even a week back then. At 65 stores, we had stores doing 200 transactions a day. We had 800 employees. We're down to 200 employees right now. We're growing year-over-year. We just grew two quarters year-over-year. Our customers right now are the large multi-state operators, large single-state operators. We're representing 90% of our businesses on the business-to-business side of it. We used to rely on the business-to-consumer side of it, and the business-to-consumer side of it is changed dramatically. When you look into wine and spirits, people growing wine, beers, it's just a very small minutia of the industry. What we've also seen through the growth of our private label brands, that these brands have tremendous legs going into lawn and garden and going into specialty retail, and into ag.
They're best of breed, what we always say is, if you can grow a cannabis plant, you can grow any plant in the world. It's the most difficult plant to grow. The products that we're launching are, again, from a price point, are incredible. We're selling at The Home Depot right now. We're selling at the Lowe's right now, through The Harvest Company. Char Coir is the fastest-growing coco brand in the country right now. You're seeing that with all our brands. The interesting and exciting part, as we'll talk about later, is we still believe these brands are in such early stage of launches. We're talking mid-40 margin business as opposed to high teens that you're seeing with distributed brands. Again, it's something that makes us tremendously excited.
I think we pivoted back in 2021 when we saw, again, Wall Street and again, the industry changed dramatically, built out too quickly. Again, the consumers walked away. It made more sense going to a dispensary than growing your own. I think we did a tremendous job when we started looking at the competition around the industry, we'll talk about after too, that we've pivoted at the right time.
Greg, I'd love to get you in the conversation. As the head of the financial piece of this model, how do you view, Darren's talked a lot about the improved efficiency of the business model, but from a financial perspective, how much more powerful is this business model now under this new operating model?
Yeah, that's a great question, Brian. Over the last several years, we've taken a deliberate approach to resizing the organization and aligning our cost structure with the realities of the current cultivation market. Our objective was not simply to reduce expenses over the last few years, but to create a leaner, more efficient platform capable of generating improved profitability across a range of market conditions. I think the results of those efforts are becoming increasingly visible in our financial performance. Throughout 2025 and into 2026, we meaningfully reduced our operating expense base through initiatives that included store rationalization, organizational streamlining, supply chain efficiencies, and a continued focus on disciplined spending. Those actions have lowered our fixed cost structure and improved our operating leverage over the business.
As a result, we reduced expenses in 2025 compared to 2024 by around $30 million and reduced total expenses by closer to $60 million over the past four years. Because of that, we've been able to demonstrate improving profitability metrics, even in a market that remains challenged from a demand perspective. We forecasted positive adjusted EBITDA in the second quarter of 2026. We expanded margins through a combination of proprietary brand growth and operational efficiencies. Importantly, we've achieved these improvements while maintaining a strong balance sheet and continuing to invest in strategic initiatives that support future growth. What we're particularly encouraged by is that many of these cost actions are structural rather than temporary. The benefits are embedded in how the business operates today.
That means as the industry conditions improve and revenue growth returns, we believe a greater percentage of incremental gross profit has the potential to flow through to the bottom line, which wouldn't have been the case several years ago. While we remain focused on further operational improvements, we believe the work that we've done so far has positioned GrowGen to be a more efficient, more resilient company with a significantly lower break-even point and a stronger foundation for long-term profitability.
That's very helpful. Just on the cost side, the cost infrastructure now is right, and basically where it should be, poised to lever as the growth returns.
Yeah, that's exactly right, Brian. I think the big key over the last several years is we've reduced our store count from near 70 in the end of 2021 to less than 20 at this point today. We've reduced expenses, like I mentioned earlier, close to $60 million over the last several years. When you look at the business, I think it's positioned sustainably for long-term profitable growth, largely due to the store reductions that we've had in place, in addition to the headcount reductions and other improvements that we've made across the operation.
Darren, from your perspective, what needs to happen in order to really reignite growth, sustained growth, at GrowGeneration than maybe in the sector more broadly?
I think you're seeing that right now, Brian. Again, we just had two quarters of year-over-year growth. Hopefully, the second quarter will be the third. I think we are reigniting growth, and we're doing that with, again, as we said, almost 40 less stores. Every time we close a store, we're losing 30%-50% of the business coming out of that store on the consumer side of it. We are starting to pick that back up. We've done an extreme large amount of work with our portals right now, and distribution. Through our distribution hubs and our portals, consumers that used to shop with us can now still shop with us. They can go online, order whatever they do need, and we ship it right out of our warehouses. I think that we've started to take care of that side of it.
When you look really at the future drivers of GrowGen, it's our private label brands. You're talking about, again, as I said earlier, changing mid-teen margin business into mid-40 margin business. What you're also seeing is the stickiness of it. When people are buying Char Coir and Drip and our brands, they're usually buying full portfolios from us, and especially the larger players in the industry. The growth leverage right now is you have the cannabis space that's always been our bread and butter, you're starting to see right now growth drivers moving into lawn and garden. You're starting to see small ag. You're starting to see overseas. That's going to take time. We're going off an extremely small base right now.
Again, when you start seeing the customers that GrowGen are starting to pick up right now, full facilities, full customers, we haven't seen that before. Another growth driver that you're going to probably see throughout the rest of the decade is CapEx is coming back into the industry. I've spoken about it at length that all the builds, all these large grow facilities that came on board from 2018 to 2021, their equipment needs to be replaced. With the shoring up of balance sheets and things of that nature right now, we're starting to see more CapEx coming through GrowGen than we've seen in a while. The exciting part about CapEx is when you're working on CapEx and initial builds, they're usually going with GrowGen for a whole suite of products. It's just not that build, it's the consumables for years to come.
That's always the exciting part about CapEx. When you get the CapEx builds, you also get the consumables for years, and years of years. It's kind of like the razor and razor blades. If you buy the razor, you got to buy the razor blades. The consumable products are our higher margin products that people need on a weekly, monthly basis. That's where growth is coming from. I think we've hit that bottom number, Brian. With all the store closings that you've seen out of GrowGen, we have lost business from closing stores. There are still consumers that don't like computers, especially in the cannabis space and the lawn and garden space. Some products are extremely bulky to ship, and it gets expensive. There are people that still have cash in their pockets and want to spend cash. You can't spend cash online.
There are ways to do it, some people can't figure it out. It's still sticky in certain places. When you're starting to see even in our first quarter this year, I think we had 12 less stores, we still had year-over-year growth. When you took that $3 million, $4 million of sales that we lost, we still picked up a couple million, that's what's starting to get exciting. What's also exciting to me is back in 2024. We lost over $15 million of adjusted EBITDA. In 2025, we lost $6 million. This year, we're looking to be profitable on an adjusted EBITDA basis. We're picking up these big clumps every year, $6 million, $7 million, $8 million a year. It's going to start adding up going through the decade, we honestly don't see it stopping. That's what excites me right now.
I think it excites our team. We have taken typical store workers and replaced them with technical salespeople, commercial salespeople that can walk into any facility in the country, whether it's cannabis, whether it's ag, and help. Value add. It's value add, consultative-based selling, and that's the stickiness of it. Our guys become integrated into facilities, integrated into companies. We're their supply chain, but we're more than their supply chain. We are making their businesses better, and the consulting side of it, we pay for. We haven't been charging for consulting. We haven't been charging for that side of the business because these are groups that are adopting our private label brands. We have a $50 million CPG part of our business. That's exciting, and we see that not stopping.
When you look at GrowGen in the future, it's going to be a product-driven, consultative-based company, and we believe products all over the world. This is just the start of it. It's the reformation of a company that was built, I guess, on the belief that everyone was going to grow a specific plant in their backyard, and that belief is gone. That's not happening. We could have pressed it longer and sat and watched the industry unfold, we made a extremely deliberate decision back in 2021, and it was a hard decision. It was selling through $100 million of inventory that we were selling to small individual growers that don't really mesh into some of the large commercial MSOs. We had two choices back then. One was to take a $50 million-$100 million write-off.
The other was to sell product at a break even to a loss that goes through the P&L and goes through margins. We believe that you're also going to see, besides sales reigniting, we believe margins are going to reignite, too. That's why you hear certainly optimism from me, and I think optimism from anyone you speak to at GrowGen right now.
Darren, you made, I think, a really interesting point just a few moments ago about as we think about just the overall, I guess maybe say better, underlying demand for cannabis. Right? What I think you said was that it's gone from that small individual grower, personal use, I would assume, to someone that says, "Look, I'm just going to buy a dispensary." Is that really the demand has just shifted, and then the GrowGen model is now shifting with that demand?
We believe it has, Brian. Again, like anything else, I think what you read about cannabis coming out of the illegal growers around the country, it's not the future. The industry is growing up. What people still don't want to understand is cannabis was recreational legal in 2014, so it's been 10 years. We're just coming out of prohibition in certain ways. When you look at wine and spirits, it's a trillion-dollar industry, but it took a long time also. You're talking 100 years later. The growth that people always thought has been slower because a couple different reasons. One has been the price drop of cannabis. Cannabis was $5,000 a pound when I started this business in 2014. It went to $600 a pound, and you're seeing prices stabilize.
Back then, people always thought, "If I got to go to a dispensary and it's $5,000 a pound and cannabis is so expensive, I'll grow it myself." What you've seen is tremendous price compression. What you're seeing, every ball that's been thrown at the industry, there's not much more that could be thrown at the industry. You're seeing legalization on the horizon. You're seeing rescheduling on the medical side. You saw that come through last month. You're starting to see tremendous efforts to push an industry that's been deflated over the last 10 years. You're seeing your first couple listings on the New York Stock Exchange, Trulieve and Curaleaf. Trulieve was just done on Wednesday, on today, I think. You're starting to see the exchanges starting to pick it up. Next month is the hearings in front of the ALJ on recreational cannabis rescheduling.
You saw rescheduling on medical done last month. There's a lot going on right now. Most of it, everything that we see is positive. Not that we're basing GrowGen's future growth on tremendous positive. Right now, what you're seeing from GrowGen is our expectations for 2026 are pretty much that nothing happens, but you're starting to see things happen right now. We believe that it's going to be this gradual move up in the industry and pricing, and you're going to start seeing exporting into other countries. You're going to see supply and demand in the cannabis growing, we believe, come back into equilibrium, so prices stabilize. We do believe that the illegal markets are going to start disappearing in our country, which will be tremendously helpful for GrowGen because 95% of our business comes from the legal cannabis growers.
Darren, talk a bit of the brands. You mentioned a few of the real key names here in our conversation so far, but I guess we just step back. How many brands do you have now? What are the key brands? As investors, how should we think about the underlying growth in that brand portfolio?
I guess our key brands right now are mostly on the consumable side of it, products that people need every week, every month, every day to grow a plant. This isn't just cannabis. This is every plant in America. Char Coir is our leading brand right now. It's a $25 million business and growing. It's a premium coco substrate business with direct sourcing out of India. It's RHP certified, one of the only cocos in the United States that's RHP certified. We continue to come out with new products under the Char Coir brand, for lawn and garden, for ag. It's just been a tremendous product for us.
One of the hardest parts is, again, when talking about the economics, it comes from India. We went through six to eight months of 50% tariffs on our product coming in from India, which was tremendously challenging for us on the margin side of it. There's only so much price increases you can take on a coco product. We ate a lot of it, but net right now, it's back down to that 10%. We're starting to realize profits back from Char Coir right now. It's a fast-growing business, and we couldn't be any more excited with it. We've recently launched something for propagation. That's where to start a plant's life, our coco coins with trays. It's a Jiffy-based product, but we believe faster growing.
We've just seen tremendous appetite for this product, and we think it's going to be a product that's, again, going to grow for many years. We continue to launch new products from Char Coir. Drip Hydro is our nutrient brand right now. It's developed by growers, really for growers. It's a million-dollar-a-month product right now and growing. It's been an incredible launch with Drip. Changing growers' appetites for new products is tremendously difficult. There's three ways to do it, and you have to do all three. It's got to be price, better yield, better quality. If not, they're not switching. They have to change their fertigation systems, and again, we go through months and months of testing with these groups, especially for bigger facilities, lab testing, quality, having our technical guys go over to the facilities on a monthly basis.
It's a slow process, but the process is working. We believe Drip has many years of growth ahead of it, so we couldn't be any more excited about that. One of our new divisions out of GrowGen is The Harvest Company. It extends our reach into broader lawn and garden markets. It's anything you need to grow any plant. It's gloves, it's scissors, it's pots, it's trellising. It's hundreds of different products. It's under The Harvest Company name. We have our website that anyone can go online and buy it. We sell this into Home Depot, into Lowe's, starting to make way more traction into big box, sell it through [Arid] into 2,000 lawn and garden stores around the country. This was a new deal that we forged this year. Like anything else, Brian, getting into these large, big box and lawn, it takes time.
This is our first year into it. The products are all GrowGen products. They're high-margin products. The packaging is spot on. The products are best of breed and priced properly. When you look at that's what's driving this $50 million division. We also have a lighting brand, ION. We have probably the most recognized silicon-based product, Power Si. That sells into the cannabis space, and we also believe it'll start selling into ag too. When you look at these brands, where we're selling them, you have the commercial sales, GrowGen portals, GrowGen Pro portals, GrowGen locations, wholesale hydroponic stores, international distribution. All our brands will be distributed internationally and emerging into lawn and garden and into ag. Again, it's the biggest, fastest-growing division of GrowGen, and we believe it's going to be something that you hear for years to come out of our company.
That's very helpful, Darren. I know our time's winding down here. Let's wrap up on the balance sheet, because again, I think that's been a huge bright spot here for GrowGen and really it allowed you to pursue this aggressive transformation while others have faltered. I guess, how do you think about the balance sheet now, the cash position, your desire to strategically buy back stock here?
We've got Greg, do you want to go over this or do you want me to?
Sure. Yeah. We do believe that one of GrowGeneration's key differentiators is the strength of our balance sheet. Over the past several years, we've been disciplined in managing costs, optimizing our working capital, and preserving liquidity, while most companies in the industry have faced significant financial pressures. As a result, we maintain a healthy balance sheet with substantial liquidity at this point. We have the flexibility to be patient and strategic in how we deploy capital. When we look at capital allocation, our primary objective is creating long-term shareholder value. We evaluate opportunities through that lens and prioritize investments that can strengthen the business and improve our earnings power over time. We remain focused on organic growth opportunities.
That includes the investments that we've made in proprietary brands, a lot of the technology initiatives that Darren alluded to, operational efficiencies and other projects that enhance profitability and generate attractive returns on our invested capital. We believe that there's still opportunities within our existing platform to drive growth and expand margins as the market continues to normalize. Second, we continue to evaluate inorganic opportunities. Given the current environment, we believe there could be attractive opportunities to acquire complementary businesses, brands, capabilities, or assets at valuations that have a sufficient rationale for the business. We do have the financial flexibility to pursue those opportunities if they meet our criteria, although we do remain disciplined in how we're looking at deals at this point in time. Then I think the share repurchase authorization that we announced should be viewed within the broader capital allocation framework of the business.
We announced $10 million in authorization from our board of directors. Importantly, it's both opportunistic and multi-year in nature. It doesn't obligate us to repurchase any specific amount of stock within a defined timeframe. Rather, it provides us with an additional tool to allocate capital when we believe our shares are trading at a meaningful discount to intrinsic value. We're continuing to look at windows of opportunity for repurchase over the next several years. Ultimately, we're fortunate to be in a position where we don't have to make decisions from a place of financial constraint. Our liquidity ratios remain very strong. We feel good about the health of the balance sheet and have the flexibility to pursue the highest return opportunities available to us.
As we sit here today, we would generally view high return organic investments and compelling strategic acquisitions as our highest priorities for capital deployment, with the buyback serving as an additional shareholder-friendly option when market conditions warrant. The overarching message is that we intend to remain disciplined, maintain balance sheet strength, and allocate capital where we believe it can generate a great long-term value for our shareholders.
Well, guys, I think our time has come to an end. Enjoyed the conversation. Congrats on the ongoing recent success here. Look forward to watching this story continue to play out.
Much appreciated, Brian. Always a pleasure. Thank you.
Thanks, Brian.