Because cash is king, Scotts Miracle-Gro presses Congress to legalize cannabis

The company that keeps your lawn green is also heavily invested in the cannabis industry and is pushing for an end to federal restrictions that prevent marijuana businesses from accessing banking services.

Scotts Miracle-Gro, an Ohio-based company that began selling lawn seed in 1868, has become a leading supplier of equipment that cannabis companies need to grow pot plants. It has also invested $150 million in RIV Capital, a cannabis investment and acquisition firm.

Over the past few years, the company’s executives have simultaneously stepped up efforts to convince reluctant House and Senate lawmakers to support changes in federal law that would lift restrictions that block marijuana dispensaries from accessing banking services. 

Morgan Fox, the political director for NORML, which advocates for ending the federal marijuana prohibition, said executives at big companies such as Scotts often have connections with powerful lawmakers and their involvement in the cannabis industry “certainly helps legitimize the issue in the eyes of some lawmakers.”

“How much they actually impact the legislative landscape through their lobbying efforts, I think is an open question,” Mr. Fox said.

Congress last year failed to advance the SAFE Banking Act that would shield banks from federal penalties if they decide to provide financial services to cannabis businesses. 

Proponents have aggressively lobbied for the legislation for nearly four years, arguing that the federal prohibition has held back the cannabis industry and, what’s worse, created dangerous situations in pot shops that are forced to deal only in cash, which has led to armed robberies. 

Another measure that has failed to gain traction in Congress would change section 280E of the federal tax code to allow licensed cannabis operators to deduct business expenses, which is prohibited because pot is illegal at the federal level. As a result, cannabis businesses end up paying much higher taxes.

In a November earnings call, Scotts Miracle-Gro CEO Jim Hagedorn said “lack of action on Safe Banking,” and other legislation was partly to blame for a “prolonged downturn” in the cannabis industry that had hurt the lawn company’s earnings. 

The company recently reabsorbed its indoor and hydroponic gardening subsidiary, Hawthorne, which supplies the cannabis industry with lighting, nutrients, growing media, fans, filtration and other supplies. Hawthorne had suffered a steady decline in 2022 sales following pandemic-era growth. 

“It’s not lost on me that this business has been a drag on earnings,” Mr. Hagedorn said of Hawthorne in an earnings call. “I want to emphasize that we believe in the future of the cannabis industry and its eventual turnaround. There is a huge amount of value that will be unlocked in Hawthorne once this rebound occurs.”

In 2021, Hawthorne made up nearly 30% of company sales before earnings dropped in 2022.

In the fourth quarter of 2022, sales fell 31% to $131.5 million. Company executives blamed it on several factors, including oversupply, lower consumer demand as well as the ongoing federal prohibition against marijuana. 

The company’s fortunes are now tied to expanding legalization from the state to the federal level.  

As of 2023, 21 states have legalized recreational marijuana while 37 states overall allow the use of cannabis for medical purposes. 

Federal law, however, prohibits marijuana for medical or recreational purposes under the Controlled Substance Act. It’s classified as a Schedule I Drug along with heroin and cocaine. 

The law prevents Scotts and other companies on the major stock exchanges from directly selling cannabis to consumers, but it did not prevent the company from investing $150 million in RIV Capital, which describes itself as “a leading cannabis consumer packaged goods platform.” The company said its business is currently focused on New York, which began allowing the sale of recreational marijuana last year.

A Scotts Miracle-Gro spokesperson did not respond to a request for an interview.

Jim Hagedorn’s son, Chris Hagedorn, who is a top company executive and runs the Hawthorne division, told CNN last year that he believes marijuana legalization at the federal level will happen eventually and suggested Scotts may go beyond potting soil and grow lights and get more directly involved in cannabis sales. 

“When it does, what are the most valuable assets going to be in a post-legalization world?” Mr. Hagedorn said. “I think anybody who thinks about it for a while says consumer-facing brands [that make and sell cannabis products] will be the most valuable.”

At the state level, the Scotts Miracle-Gro executives lobby against arbitrary limits on cultivation licenses and in favor of laws allowing people to grow pot plants at home.

“States should adopt measures that allow local governments to address legitimate public health and public safety issues while ensuring the illegal sales are not perpetuated in place of state-authorized sales through overly-restrictive zoning requirements,” company officials said

On Capitol Hill, lawmakers will again introduce the Safe Banking Act as well as other measures to legalize marijuana at the federal level, but the timing is uncertain.

Last week, Senate Majority Leader Charles E. Schumer, who is in favor of decriminalizing marijuana at the federal level, held a closed-door meeting with lawmakers this month about the Safe Banking Act, which may be reintroduced with funding to help state and local governments review and expunge cannabis convictions.

In the House, the new GOP majority will likely be far less inclined to take up legalizing pot, but Financial Services Committee Chairman Patrick McHenry, North Carolina Republican, said he is open to considering the Safe Banking Act if the GOP caucus is in favor of it, even though he opposes it. 

Bethany Moore, a spokeswoman for the National Cannabis Industry Association, said large companies like Scotts may be critical in helping push the Safe Banking Act forward in time to keep the cannabis industry solvent.

“These bigger companies do have bigger budgets to contribute to the lobbying that is needed in order to influence and educate member Congress on the issues like the Safe Banking Act and Section 280E of the IRS tax code, that are crippling cannabis operators,” she said.