Grow Generation Corp. (NASDAQ:GRWG) stock fell over 3% in early trading after the company announced a $35 million stock offering and gave hints of potential COVID troubles ahead.
The hydroponic store chain filed an S-1 to offer $35 million in stock plus a 30-day option to purchase up to an additional 15% of the shares or $5.25 million. The company said in a statement, “We intend to use the net proceeds from this offering primarily to expand our network of hydroponic/garden centers through organic growth and acquisitions and general corporate purposes.”
However, within the S-1, GrowGeneration hinted that there could be problems on the horizon as a result of the pandemic.
The company stated in its filing that COVID-19 was affecting its operations. “Although we have been deemed an “essential” business by state and local authorities in the areas in which we operate, we have undertaken the following measures in an effort to mitigate the spread of COVID-19 including limiting store business hours, and encouraging employees to work remotely if possible. Moreover, the COVID-19 pandemic has caused temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory. Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial condition, resulting in reduced spending for the products we sell.”
The company said that many of its suppliers were experiencing operational difficulties as a result of COVID-19, which in turn may have an adverse effect on its ability to provide products to our customers.
Manufacturing plants have closed and work at others curtailed in many places where we source our products. Some of our suppliers have had to temporarily close a facility for disinfecting after employees tested positive for COVID-19, and others have faced staffing shortages from employees who are sick or apprehensive about coming to work. Further, the ability of our suppliers to ship their goods to us has become difficult as transportation networks and distribution facilities have had reduced capacity and have been dealing with changes in the types of goods being shipped.
GrowGeneration also noted that returning to business, as usual, may not be so simple. “Once we are able to restart normal business hours and operations doing so may take time and will involve costs and uncertainty. We also cannot predict how long the effects of COVID-19 and the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could take additional restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate. It is also possible that the impact of the pandemic and response on our suppliers, customers and markets will persist for some time after governments ease their restrictions. These measures have negatively impacted, and may continue to impact, our business and financial condition as the responses to control COVID-19 continue.”
For now, the company said things seem to be okay. It said that the difficulties experienced by the suppliers had not yet impacted its ability to get products to customers. The company also noted that it does not significantly depend on any one supplier. “However, if this continues, it may negatively affect our inventory and delay the delivery of merchandise to our stores and customers, which in turn will adversely affect our revenues and results of operations. If the difficulties experienced by our suppliers continue, we cannot guarantee that we will be able to locate alternative sources of supply for our merchandise on acceptable terms, or at all. If we are unable to adequately purchase appropriate amounts of inventory, our business and results of operations may be materially and adversely affected.”
Currently, GrowGen has 27 stores, which include 5 locations in Colorado, 5 locations in California, 2 locations in Nevada, 1 location in Washington, 4 locations in Michigan, 1 location in Rhode Island, 4 locations in Oklahoma, 1 location in Oregon, 3 locations in Maine and 1 location in Florida. GrowGen also operates an online superstore for cultivators, located at www.growgen.pro and www.growgeneration.com.
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