Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v3.22.1
ACQUISITIONS
3 Months Ended
Mar. 31, 2022
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS ACQUISITIONS
 
Our acquisition strategy is primarily to acquire (i) well established profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date. The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants. During the three months ended March 31, 2022 our measurement period adjustments included increasing goodwill by $1.3 million offset with intangible assets. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.
 
Acquisitions during the three months ended March 31, 2022
 
On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc. (“HRG”), a specialty marketing and sales organization of horticultural products based in Ogden, Utah. The total consideration for the purchase of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock of the Company valued at $0.9 million. Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment. The Company's preliminary estimates of fair values of the net assets acquired are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations.
The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2022.

  HRG
Inventory $ 4,170 
Prepaids and other current assets 76 
Furniture and equipment 148 
Operating lease right of use asset 666 
Operating lease liability (666)
Customer relationships 2,430 
Trademark 496 
Non-compete 255 
Goodwill 5,816 
Total $ 13,391 

The table below represents the consideration paid for the net assets acquired in business combinations.

  HRG
Cash $ 6,806 
Indemnity stock holdback 875 
Common stock 5,710 
Total $ 13,391 

The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the period ended March 31, 2022.
  HRG
Acquisition date February 1, 2022
Revenue 3,436 
Net Income — 


The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three months ended March 31, 2022 and 2021.

Three Months Ended Three Months Ended
  March 31, 2022 (Unaudited) March 31, 2021 (Unaudited)
Revenue $ 83,603  $ 93,458 
Net income $ (5,176) $ 6,147 

Acquisitions during the three months ended March 31, 2021

On January 25, 2021, the Company purchased all of the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.7 million, including $1.2 million in cash and common stock valued at approximately $0.5 million. Acquired goodwill of approximately $0.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Indoor Garden & Lighting, Inc. is included in our Retail segment.
 
On February 1, 2021, the Company purchased all of the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $0.4 million. Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Depot Maine is included in our Retail segment.

On February 15, 2021, the Company purchased all of the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3) and Oklahoma (1). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million. Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Grow Warehouse LLC is included in our Retail segment.
 
On February 22, 2021, the Company purchased all of the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, California. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million. Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. San Diego Hydroponics & Organics is included in our Retail segment.
 
On March 12, 2021, the Company purchased all of the assets of Charcoir Corporation, which sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.4 million, including $9.9 million in cash and common stock valued at approximately $6.5 million. Acquired goodwill of approximately $6.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established distribution market for the Company of a proprietary brand. Charcoir is included in our Distribution and other segment.
 
On March 15, 2021, the Company purchased all of the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California. The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including $5.4 million in cash and common stock valued at approximately $1.1 million. Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. 55 Hydroponics is included in our Retail segment.
 
On March 15, 2021, the Company purchased all of the assets of Aquarius, a hydroponic and organic garden store in Springfield, Massachusetts. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million. Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Aquarius is included in our Retail segment.
 
On March 19, 2021, the Company purchased all of the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million. Acquired goodwill of approximately $8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer. Agron is included in our E-commerce segment.
The table below represents the allocation of the purchase price to the acquired net assets during the three months ended March 31, 2021.

  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Total
Inventory $ —  $ 957  $ 780  $ 839  $ 1,400  $ 2,450  $ 326  $ 372  $ 7,124 
Prepaids and other current assets 46  12  29  534  36  30  —  690 
Furniture and equipment 29  63  50  —  315  250  25  94  826 
Liabilities —  —  —  —  —  (169) —  —  (169)
Operating lease right of use asset 98  108  861  —  1,079  641  92  137  3,016 
Operating lease liability (98) (108) (861) —  (1,079) (641) (92) (137) (3,016)
Customer relationships 832  339  809  5,712  605  1,256  549  210  10,312 
Trade name 1,530  485  870  1,099  1,192  2,748  344  353  8,621 
Non-compete 139  —  26  —  94  36  303 
Intellectual property —  —  —  2,065  —  —  —  —  2,065 
Goodwill 8,673  1,702  3,915  6,119  5,728  11,120  866  661  38,784 
Total $ 11,249  $ 3,558  $ 6,479  $ 16,368  $ 9,282  $ 17,779  $ 2,149  $ 1,692  $ 68,556 
 
The table below represents the consideration paid for the net assets acquired in business combinations.

  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow
Depot Maine
Indoor Garden Total
Cash $ 5,973  $ 2,331  $ 5,347  $ 9,902  $ 4,751  $ 8,100  $ 1,738  $ 1,165  $ 39,307 
Common stock 5,276  1,227  1,132  6,466  4,531  9,679  411  527  $ 29,249 
Total $ 11,249  $ 3,558  $ 6,479  $ 16,368  $ 9,282  $ 17,779  $ 2,149  $ 1,692  $ 68,556 
  
The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement for the period ended March 31, 2021.
 
  Agron Aquarius 55 Hydro Charcoir San Diego Hydro Grow Warehouse Grow Depot Maine Indoor Garden Total
Acquisition date
3/19/2021 3/15/2021 3/15/2021 3/12/2021 2/22/2021 2/15/2021 2/1/2021 1/25/2021
Revenue $ 230  $ 185  $ 328  $ 276  $ 1,001  $ 2,168  $ 993  $ 805  $ 5,986 
Net Income $ 22  $ 16  $ 32  $ 101  $ 117  $ 294  $ 205  $ 118  $ 905 
 
The following table discloses the pro forma consolidated statement of operations as if the acquisition had been included in the consolidated results of the Company for the three months ended March 31, 2021.

Three Months Ended March 31, 2021
  (Unaudited)
Revenue $ 99,095 
Net income $ 7,403