The Scotts Miracle-Gro Company (SMG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the 2021 Scotts Miracle-Gro Investor and Analyst Day. I'm Jim King, Executive Vice President, Chief Communications Officer, but most importantly, your host for this event. If you're with us this morning, clearly, you know The Scotts Miracle-Gro story at least at a high level. The goal today is to provide a clear understanding of our thoughts about the future and the steps that we're taking to capture the opportunities that lie ahead. The subjects we'll cover are a direct result of the conversations I've had with many of you over the past year. You've wanted to know whether we believe our U.S. Consumer business can continue to grow in a post-COVID world. You've asked with differentiates Hawthorne from some of the names that have recently gone public in other ancillary areas related to the U.S. cannabis market. We're going to answer those questions today, and you're going to get a chance to hear from a group of my colleagues who normally don't interact with Wall Street. As we've assembled the content for today's meeting, I've learned a lot myself, and I trust that you will as well. In a few minutes, I'm going to turn things over to Jim Hagedorn who will provide a strategic update, and then Jim will turn to Cory Miller and Mike Lukemire for a quick update on how we see the current year evolving. From there, we'll move into a deep dive to discuss Hawthorne, with 5 separate presentations that will take a little bit more than 1 hour to complete. We'll then transition to the U.S. Consumer business. With 4 presentations, it will take roughly 40 minutes. At that point, we'll take a short break for about 10 minutes, and then begin a live Q&A session. To facilitate Q&A in an orderly fashion, here's what we're going to do. The sell-side analysts who cover Scotts Miracle-Gro will join me and my colleagues for that part of the meeting. We'll give them all a chance to ask questions. In addition, I'll pose any questions that are submitted by our shareholders or buy-side analysts during that time as well. Throughout the meeting this morning, you'll have a chance to send questions to us through the OpenExchange portal. [Operator Instructions] I'll sort through the questions, look for common themes and then pose them on your behalf. We've got a lot to cover, so let's get started. As you know, we're going to make forward-looking statements this morning, so it's my job to remind everyone that our actual results could differ materially from what we discuss today due to a variety of risk factors. I'd encourage investors to familiarize themselves with those risk factors which are listed in our Form 10-K filed with the Securities and Exchange Commission. I'd also tell you that we're going to discuss a variety of non-GAAP financial measures. There is a link located on the left portion of the screen where you can find an attachment with our reconciliation to our GAAP results. And finally, by tomorrow, we hope to post a full transcript of this meeting. That transcript can be found on our Investor Relations website, investor.scottsmiraclegro.com. An archived version of this meeting also will be housed on that website in the event that you can't watch at all today. So I want to thank you once again for joining us today. I'm optimistic that you're going to find this to be time well spent, and I look forward to hearing your feedback. We're going to start the program with some thoughts from my boss, our Chairman and CEO, Jim Hagedorn. So Jim, why don't you take it away?

Hello, everyone. I'm Jim Hagedorn, Chairman and CEO of Scotts Miracle-Gro. I want to thank you for spending the time today to learn more about our company and our commitment to continue driving shareholder value. Over the next 2-plus hours, we'll share what we believe is an optimistic and compelling story, and that story goes well beyond the record results we've been posting for the last several years or expect to post again in 2021. Yes, you'll hear us set new guidance targets for fiscal '21 on both the top and bottom lines. But the focus of this meeting today is not about our performance this year, it's about the way we're set up for the future. At the outset, I'll say I'm happy to hold this meeting virtually, and we're going to do our best to ensure the virtual aspect of this meeting is not your typical Zoom call. Throughout our presentations, a dozen or so members of our team will take you on a road trip of sorts. You'll see manufacturing and distribution facilities, R&D operations, cannabis growing operations, retail stores, Bonnie growing facilities and our own storefront in Ohio called Greendigs, which is a part of one of the native brands we've been developing. You'll hear from some of the best talent in our organization, a diverse team with backgrounds in finance, marketing, science, government, sales and supply chain. By the time we're done, I believe you'll better appreciate what we're doing here at Scotts Miracle-Gro and why we are so bullish on the future. I have 3 goals for today's meeting. First, to reframe how you see our business. This will be the third consecutive year in which both segments are significantly outperforming the long-term growth expectations we laid out several years ago. Even if I try to strip out any impact from COVID, we're still ahead of where we thought we'd be. This multiyear run has forced a disciplined reevaluation of how we prioritize our uses of cash to ensure we're properly supporting the business. You'll hear us talk about strengthening our infrastructure and building our brands. We're no longer satisfied with the assumption that our core businesses mature, and we see the marketplace for Hawthorne continuing to expand as well. Second, I want you to understand why we feel this way. The majority of our time today will focus on Hawthorne. It's a deep dive that explains our vision, our portfolio, selling process, commitment to innovation and the view of the current political landscape. I'm confident you'll walk away not just with a better understanding of Hawthorne, but with the firm belief that we are better positioned, by far, than anyone else in the industry. I hope you draw the same conclusions about our U.S. Consumer business. We'll talk about our marketing initiatives and the major improvements we've made in our direct-to-consumer efforts. And since we're in the midst of spring, we'll take you on a virtual store walk to remind you of just how strong our brands are in the marketplace. My third goal today is to demonstrate our depth of talent. It's interesting when you're CEO. You're not responsible for the execution; instead, you strategize, you direct, you lead. And then maybe a few months, maybe 1 year later, you see your ideas come to life. And they're brought to life not by the CEO, but the people around him or her. I could not be more fortunate than to be surrounded by the people you'll hear from today. They've done the work to take this business to an entirely new level. When people at Scotts Miracle-Gro set out to do something, they do it. It's one of the things that I've always admired the most about this company. I used to say our competitive advantages were brands, supply chain, innovation and our sales force. Those remain important weapons in our arsenal, but from where I sit, our most powerful advantage is our team. Unfortunately, you'll only hear from a dozen of us today, but later in the program, we'll spend a few minutes introducing you to a broader group of up-and-coming young leaders. They deserve to be on your radar screen because I'm confident many of them will be sharing this stage in the not-too-distant future. I clearly remember when I first stepped on the stage. In May, I'll mark my 20th year as CEO of this company. Those who have been around a while know that I've never been one to worry about the next quarter or even to some degree, the next year. What's been core to my views since the day in 1995 when my family's business, Miracle-Gro, joined forces with The Scotts Company was a focus on driving long-term value creation by setting aggressive targets for what's possible and then driving the business to get there. The result has not always been a straight line, but I'm really proud of our track record over that period. Indeed, our market capitalization has grown from about $600 million when Scotts and Miracle-Gro combined to more than $12 billion today. I'm proud, but not satisfied. None of us are, and hopefully, you'll agree with us by the end of the day that we have a lot of runway still ahead of us. So let's get started. I'm delivering this message today from my office in Marysville, Ohio. With the exception of a few members of our corporate communications team, the building is still empty. It has been since March 12 of last year when we closed our offices because of COVID. In the weeks and months ahead, we'll begin to creep back into the office. I can't wait to see familiar faces and feel the energy that's apparent to anyone who walks through our front door. This past year has been challenging in countless ways. COVID has been a global crisis beyond what any of us could have imagined, and we all wish it had never happened, but it did. And as the stewards of this business, it was the job of my team to get us through the crisis. How this team navigated the past year is the proudest moment of my career. Second place isn't even close. What we've learned over the past year is all of the work, all the planning, the reconfiguration of our portfolio, our year's long focus on leveraging our competitive advantages, the nurturing of a family-centric corporate culture, all of that came together over the past 12 months to make this company stronger than I believe it's ever been. We took advantage of a period of time where there were virtually no rules, and we dismantled our own bureaucracy. We had smarter conversations, focused on making faster decisions and then moved on to the next issue. And the more it worked well, the more it worked. Clearly, the benefits that accrued to us during 2020 were well beyond what we could have expected. But the fact that our mindset has changed and our strategy has evolved is not merely a reaction to what we've seen over the past year. Our mindset was changing before COVID hit. In 2019, we started off, as we always do, guiding to flat sales to plus 2 in our U.S. Consumer segment. We delivered 8% growth, 5% without pricing, but our ability to grow and take 3 points of pricing in that environment speaks to the power of our brands. In 2020, we guided low again, but our sales and marketing team was telling us they believe the real growth opportunity was 5% or 6%. That's the path we were on, and then COVID hit. It's hard to tell you with precision what COVID meant to our sales growth last year, but we already were seeing the opportunity for more growth and beginning to see the need to reassess our strategy we laid out for shareholders in 2015. That's when we launched an initiative we call Project Focus. In short, we said we focus on 3 things: first, strengthen our market-leading position in our U.S. Consumer business and drive cash flow; second, supplement growth in the slow-growing core by reconfiguring our portfolio. We sold our European consumer businesses and Scotts LawnService. We reinvested that money in a minority position in Bonnie Plants and started making investments in what is now Hawthorne. Our belief then was that these business could grow at twice the rate of the core. The third pillar of Project Focus was returning cash to shareholders. We changed our compensation programs to incentivize more consistent cash flow performance, and the goal was to use that cash for significant share repurchases. When you brought it all together, Project Focus was designed to enable the company to grow 3% to 5% and consistently generate double-digit shareholder returns, and we succeeded in a big way. As I look back, it was the right strategy at the right time, but it was largely defensive because we didn't see much growth on the horizon in the U.S. Consumer segment, and none of us anticipated what Hawthorne would become. Half of the shareholder return we set out to deliver from that effort was from either share repurchase activity or dividend payments. That's not what we believe today. Let me be clear. I still believe cash flow is the real driver of value, and I still believe in returning cash to shareholders. But I also believe that Scotts Miracle-Gro is better positioned than it's been in at least a decade for growth to be the primary driver of shareholder value. I also want to stress that we're not talking about a full-out departure from our strategy, just a refinement. As I've taken this saying lately, the music may not sound familiar at first, but if you listen carefully, you'll still recognize the tune. So let me play it for you, starting with our U.S. Consumer segment. When we launched Project Focus, we talked about lawn and garden being a relatively mature category. We were worried that millennials would not become homeowners in the same way their parents did and that the relevance of the category would be challenged. Today, we believe just the opposite to be true. While we're certainly focused on keeping as many of last year's new users in the category as possible, a focus on near-term results is not what's driving our actions or our optimism. We believe demographic and other societal changes will be a friend of this category for years to come. The largest generation in history has finally made its way to homeownership. We're often asked about the impact of housing on our business. We don't talk about it much because we've never been convinced it's had a profound impact. But over the last several years, it's been the demographics of the housing market that have caught our attention. Millennials represented 37% of the housing market in 2018, and they became the largest cohort of buyers in America. The next year, it inched up to 38%. And when they became homeowners, they started to become gardeners. According to our research, 70% of millennial homeowners are active gardeners, that's a higher percentage by double digits than any other demographic group. Their interest in our category is greater than that of their parents, and we've realized we need to take our cues from them, not the other way around. They're driving us to find new ways to reach them, to find new ways to work with our retail partners to engage them and to build new competitive advantages to meet their expectations in an online marketplace. In short, our relationship with millennials is the essential ingredient in ensuring the continued relevance of the lawn and garden category over the next 20 years. And the opportunity we see leads us to believe U.S. Consumer, even off a higher post-COVID base, can grow 2% to 4% annually as we look ahead, essentially 200 basis points more than we believed entering 2019. Getting that growth requires a commitment, that's why we'll invest more in marketing and media than ever. Josh Peoples will share more details with you later today, but we are at a critical point in our relationship with consumers. We have the ability to create relationships with a new generation of consumers that could benefit us for years to come. When we think about it through that lens, the investment in 2021 is not a complicated decision. We're also investing more heavily in new delivery systems and brands. We're rather agnostic about whether consumers have products delivered to their homes, whether they buy online, they pick up in store or whether they continue to shop the old-fashioned way, which we believe the vast majority will continue to do. What's important is that they have easy access to us and the products and solutions that we offer. They also may or may not want our traditional brands. If they want something new, we want it to come from us. And so developing new native brands is also critical to our future growth. All of this work falls under the leadership of Patti Ziegler, and she'll talk about the work of her team in more detail. And as you've heard me say repeatedly, the live goods category is an important part of our future. I told you previously that we wanted to be seen by consumers as a gardening company, not just a gardening products company. Consumers don't go to the store on a Saturday morning because they have an overwhelming desire to buy more soil or pest control products. They engage in this category because they're gardeners. Some of you on Wall Street may not get it, but there's an emotional element to this business that drives consumer behavior. And if we want to be a true leader in this industry, we can't just be the people who sell inputs. That philosophy is what drove our initial investment in Bonnie Plants, giving us a 25% stake at the time. We leveraged their best-in-class capabilities in growing and shipping plants. They leveraged our marketing and sales force. It was a complementary relationship that led us to agree in recent months to a 50-50 joint venture that we have today. Frankly, we are willing to buy 100% of Bonnie, but their owner, Alabama Farmers Coop, also believes in the opportunity, and they wanted to stay engaged. We have a partner in Bonnie that also sees the benefit of a broader footprint. In fact, Bonnie's CEO, Mike Sutterer, a former leader in our U.S. Consumer business, is part of the agenda today. Working together, the goal of our 2 companies is to acquire other assets in this space and find more ways to use plants as a way to strengthen our relationship with consumers. I can go on at length about the other opportunities we see and the steps we're taking to win. We continue to make progress with natural and organic products. We continue to see exciting opportunities in the fast-growing grass seed market, and our controls portfolio has never been stronger. But those are not the details that matter here today. What matters is that all of you watching today understand why we see the opportunity for growth and understand why we're confident in our ability to capture it. The second reason we're so confident, of course, is Hawthorne. The potential for a sustainable double-digit growth in the coming years at Hawthorne is real. Many of you want to know what that means. Frankly, it's hard to say because so much of it is dependent on issues beyond our control. For example, given the timing of when some markets may open or when some major projects may get completed, some quarters, growth might be only 10%; some quarters, it might be 20%, 30% or 40%. I'm not worried about the choppiness, and I hope it's an issue all of you understand as well. As I said at the outset of my remarks, I have never managed quarter-to-quarter, and I'm not going to start now. What do I know that the ability for long-term value creation from this business is real and that if we're focused on the long term, then we can tolerate some choppiness as we navigate our future course. Remember, our original intent for Hawthorne was to focus on urban gardeners broadly, not on professional cannabis and hemp cultivators. But when presented with the opportunity, we seized it. The pioneers in this industry, small but savvy entrepreneurs, took their businesses as far as they could. They knew the landscape was changing, and they were looking for someone who would treat them with respect and help them take their businesses to a new level. The consolidation that ensued gave birth to Hawthorne as we were willing to enter a space that other public companies openly avoided and most still do. We leveraged our vision with our history and knowledge and professional high-end horticulture to create an industry-leading business. We saw the growth in state-authorized cannabis, but we chose not to play directly in the space. We also knew that our heritage was in helping people grow healthy plants, so investing in hydroponics and indoor growing products allowed us to take advantage of the cannabis wave. While the legal cannabis space remains a young industry, there are already a lot of lessons. First and foremost, you can't win just by showing up. Obviously, that's not the approach we're taking here. We've been taking a long-term approach from day 1, even at a time when some of you didn't fully understand what we were doing or agree with our approach. At an Analyst Day meeting in 2016, we announced the acquisition of General Hydroponics. There was a great deal of skepticism about that deal. It continued after the acquisitions of Botanicare, Gavita and Can-Filters. And in the middle of a massive industry downturn in 2018, we stepped up and bought Sunlight Supply. It remains the largest acquisition in the 153-year history of our company. The fact that we stuck with this strategy when so many questioned it says something about who we are at Scotts Miracle-Gro. We weren't being stubborn. After 2018, we did sit down and reevaluate everything we were doing, and we came away from that process with even more optimism. So I believe this period on our history could be defined by a single word: conviction. Just like we did with our consumer business in the 1990s, we sought to build a portfolio with the best products and brands in the industry, and then we turned around and acquired the supply chain infrastructure to bring it all to life. While no one knew what the growth rate of the businesses would be when we ventured down this path, we knew the potential was real. Still, we were disciplined in our approach to M&A, paying on average about 8x earnings. Remember what I said about Project Focus. The original vision for Hawthorne was to grow only at twice the rate of the U.S. Consumer business, which would have allowed SMG to add another point of 2 to the top line. That mindset was factored into the prices we were willing to pay, so we've significantly exceeded our deal cases in every instance. Our appetite for M&A remains strong. We have a number of ideas in the pipeline, but we'll exercise the same financial discipline that we've shown since day 1. If you're wondering, yes, multiples are getting higher. That doesn't mean we'll chase deals that don't make economic sense. Frankly, we'd rather compete with those businesses than to overpay for them. Longer term, assuming there are ultimately changes to the federal laws, we're likely to look at M&A through a lens that puts us closer to the grower and the end user. In a few minutes, you'll hear more from Chris Hagedorn about our vision for Hawthorne and our goal to establish ourselves as the single most critical supplier to cultivators who are working in the authorized cannabis industry. You'll learn more about the breadth and depth of the product portfolio from Dan Paradiso, who is the Chief Operator at Hawthorne. You'll also hear from Brian Herrington, who was recently promoted to Vice President of External Affairs at Hawthorne. He'll help you with a better understanding of the political landscape, both at the state and federal level, and the opportunities we see for new markets to open in the next few years. Jeff Kwiatkowski will share more details about the steps we've taken to strengthen our sales force in order to provide a level of service that is well beyond anyone else in the industry. And you'll also hear from Paula Powell about the critical role of innovation in this industry, including the opening of our new R&D facility in British Columbia, the first of its kind in the world. We believe Hawthorne has just scratched the surface. We see a market landscape that is filled with opportunities, and we're going to put our resources to work in the space. Speaking of putting our resources to work, I want to pivot and talk again about our allocation of capital. By the end of this year, we project the U.S. Consumer segment will have grown by more than 35% over the past 3 years. We never envisioned that. Even if the growth rate in '22 and '23 is flat or even if it falls backward a bit, this new base requires a different level of capital investment. Over the balance of the year, we'll continue to assess what we need to do. Our biggest focus is in our growing media business, which is likely to have grown by more than 50% over the period I just outlined. Not only that, but we continue to believe gardening to be the biggest growth opportunity going forward, and so it is essential that we invest properly in our growing media infrastructure. At Hawthorne, we've been continuing to build out our infrastructure, but our growth over the same 3-year period, well over 100%, requires us to look harder at what's required to meet the future needs of this business. Here's what I can tell you right now. In fiscal '21, we expect our CapEx to be in the range of $125 million to $150 million. The high end of that range is double the run rate of the business over the past 5 years. It's possible we'll see another year of investment at this level in fiscal '22. As soon as we have a better handle on that, we'll let you know. The other reality we're facing is the rapid acceleration of our growth rate in both segments has taken our inventory below an acceptable level, which has caused 2 problems. First, we've left sales on the table. We believe we lost at least $200 million in sales in 2020. The second problem is worse. Our service level over the past 12 months have fallen to a point lower than any of us can recall over the past 20 years. That's something Mike and I will not tolerate. We used to tell our retail partners and our investors, we considered our supply chain to be a competitive advantage. We called ourselves world-class. By the end of fiscal '22, I am committed to telling you once again that our supply chain is delivering world-class performance. I want to be clear in my view here. I believe that value is driven by cash flow, not EPS, and then smart decisions with how we deploy that cash. So even if our cash flow gets a bit choppy in the near term, our long-term commitment is unwavering. At Hawthorne, however, I'm not convinced that cash flow should even be a part of the discussion over the next 3 years. We continue to see significant growth opportunities, and along the way, we expect our profitability to improve as well. But this is not the time in the life cycle of this business to be stingy with our investments. We will continue to build the inventory we need to be a better partner, and we'll continue to build and improve our infrastructure, people, processes and systems. We will continue to do what is necessary to dig a wider, deeper and more impenetrable moat around our business. In terms of overall use of capital, I want to reiterate what I said earlier. In addition to ramping up our capital spend in the near term, we will allocate more dollars to M&A for both the U.S. Consumer and Hawthorne. But even if we execute against everything in the current pipeline, we still have plenty of capacity. The bias of our Board of Directors is to continue authorizing returning cash to shareholders. We'll likely repurchase about $75 million of shares in this year and continue paying our regular dividend. Additionally, we still have a bias towards some level of special dividend payment later this year, the ultimate size of which is likely to be determined by how the year is coming together. Our leverage ratio currently stands at about 2.25x debt-to-EBITDA. Our target leverage remains at 3.5x, which we can maintain even if we execute everything I just outlined. As I wind down and turn things over to my colleagues, I want to say just a few words about them. I've been around this industry for most of my life. I've been the CEO of the company for 20 years, and I'm being sincere in saying I've never felt better about the team around me and the teams around them. When we launched Project Focus, I would tell you that our cupboard was pretty bare when it came to talent. One of the reasons we created a 5-year incentive compensation plan was because the Board and I wanted to make sure we did everything we could to keep our very best leaders in place. 16 of the 19 people who are part of that original retention plan are still with the company. Over the past several years, many of those people have demonstrated the ability to operate at an even higher level. Part of how they've done that has been developing and strengthening their own teams. I'm confident in saying today that our business, make that your business, is in great hands. I want to thank you once again for spending time with us today. We've worked hard to develop the content for this meeting because we view it as an important discussion. The bulk of the presentations you heard today will focus on Hawthorne, and that's a direct reflection on the request we've heard from many of you. But before we get into those discussions, I want to give you all an update on how we see fiscal '21 coming together. As I said earlier, we're going to call up our numbers today, which is something we rarely do this early in the year. However, it's clear already that our U.S. Consumer business is going to do better than we originally expected. Even with some of the cost pressures and the increased investments we've been talking about on our Q1 earnings call, this higher level of growth also means we'll see EPS at a higher level as well. To give you a better sense of what we're seeing right now, I'm going to turn things over to both Mike Lukemire and Cory Miller.

Good morning, everyone, and thanks, Jim. It's good to have a chance to talk with all of you again. As I've been settling into my new role over the past few months, one aspect of the job that was new to me is talking to our analysts and investors. This has turned into one of my favorite aspects of the role. Perhaps part of the reason is I get to keep sharing good news. This is my fourth opportunity to speak publicly about our business since January. It is the third time I've had the opportunity to deliver positive news. As you know, we announced last month that we now expect to show positive sales growth in our U.S. Consumer business this year. The previous guidance we provided was a growth range of flat to negative 5%. This morning, I can now tell you we expect sales to increase in the range of 4% to 6%. We still expect the cadence of the year to remain the same. We'll see a strong start in the first 6 or 7 months, then likely see some challenges in the final months of the year as we compare against the record sales we posted in 2020. At Hawthorne, we continue to expect sales growth in a range of 20% to 30%, though I now believe the top half of that range is more likely. So on an enterprise basis, we now expect company-wide sales growth of 8% to 12% compared to a previous range of 1% to 6%. That means we now expect our adjusted earnings to be in the range of $8.60 to $9 per share. This compares to our previous range of $8 to $8.40 per share in our fiscal 2020 performance of $7.24 per share. And as a reminder, our adjusted earnings in fiscal 2019 were $4.47 per share. So we have the potential to double the earnings of this business in just a 2-year time period. As it relates to adjusting our P&L guidance, we're focusing on sales and adjusted EPS until we get further into the season. We said in early February, we could see gross margins decline 125 to 175 basis points. That's still a good estimate, although current trends would suggest the more negative end of that range is most likely. As you all know, the commodity environment is challenging for everyone right now. Also issues like product mix and fixed cost leverage could vary a bit in the coming months depending on how the sales finish. I'll come back to the topic in a few moments and provide a little more color on the commodity front. Back to our guidance. As it relates to SG&A, as we said in February, we still expect it to decline 3% to 8% on a year-over-year basis. We can spend time fine-tuning every line of the model, but frankly, I don't believe that it's a productive use of time. Within the broad parameters of sales, gross margin and SG&A guidance, you can find your way to the EPS range we provided. It's too early to know what the gross margin rate impact would be if sales in the U.S. Consumer were up just 4% versus 6%. And without that knowledge, it's difficult to predict with precision what the impact would be on variable pay or whether we might choose to defer certain investments in fiscal '21 or perhaps pull investments forward into this year. Suffice it to say that even though it's early in the lawn and garden season, we're confident in these updated ranges. We will provide you with as much clarity as we can as the year progresses, just as we have throughout this unusual 2-year period. As it relates to cash flow, again, much depends on how things evolve over the next several months. I can tell you, however, that we now expect free cash flow, that's operating cash flow net of CapEx, to be closer to $250 million compared to our original guidance of $325 million. There are 2 items driving this number lower, both of which Jim alluded to in his remarks. We are stepping up our capital investments this year. Without doing so, we leave ourselves vulnerable in future years. This is not the result of underinvesting in the past. All of us believe that the previous capital spending was appropriate given the growth prospects of the business at that time. But if we hit our updated growth targets for U.S. Consumer, this business will have grown more than 35% over the past 3 years. Hawthorne during that same time period will have more than doubled. All of that growth was organic and well beyond what we expected. The other unknown right now is working capital. As we said on our last call, we called up our production levels late last fall in anticipation of what we believed would be higher retailer demand. We were right in that assumption. But how much inventory ultimately sells through versus how much we carry over year-end is dependent on which end of the sales growth range we hit. Now is not the time to pull back on inventory. So if we find ourselves carrying more inventory at the end of the year than we anticipated, I'm okay with that. In fact, it could actually create a tailwind for fiscal '22 if we continue to see upward pressure on urea and resin prices in particular. Speaking of those inputs, let me address the issue of commodities more broadly. It is a near constant focus of questions these days for obvious reasons. Commodity-sensitive materials represent a little more than 20% of our total cost of goods bucket. In 5 commodities, urea, resin, diesel, grass seed and sphagnum peat moss make up about 60% of that bucket. Entering April, we are roughly 85% locked on urea, resin and diesel for fiscal '21. This is a slightly higher level of exposure than we would normally have this time of year, but that is due simply to the fact that our sales targets are now exceeding our original forecast. We are also increasing pricing this year, in fact, at a higher level than average. However, those increases do not kick in until the fourth quarter, which contributes to the gross margin rate pressure for fiscal '21. The fourth quarter price increases carry over into fiscal '22, so we feel comfortable we'll be in a better position as we plan for next season. We committed long before I took this role that we would be transparent throughout the year and keep you updated as things unfolded, and that's just what we've done. But please understand, we continue to operate in an unusually fluid environment, but it's our ability to navigate these unusual times that gives me even more confidence in Scotts Miracle-Gro. I couldn't feel better about the commitment of our team, the way the business continues to operate and the opportunities we have to continue driving value for shareholders. I look forward to talking with you again later this morning. But for now, let me turn things over to my colleague, Mike Lukemire.

Thanks, Cory, and good morning, everyone. While I spend a good bit of time working with other key external stakeholders, mostly retailers and vendors, I know our shareholder community is critical as well, so I'm glad to be with you today and looking forward to helping you better understand Scotts Miracle-Gro. Jim often comments on our conference calls about what an optimist I am, and he's right. I see all the opportunity here and can't help but believe that we have enormous potential for continued growth. You just heard our new guidance ranges from Cory. And if you've been following us at all for the last 6 months, you'll know I'm not surprised. While COVID has created a good bit of uncertainty, especially related to the back half of this year, I have always believed we had the capacity to see year-over-year growth in our consumer business. As I sit down and talk with our retailers, every one of them is optimistic about the season. In fact, I don't recall a time when I've ever been this bullish before the start of the lawn and garden activity. They see lawn and garden as a destination category, and they see our brands as being critical to keeping foot traffic flowing through the door. Later this morning, you'll hear from Josh Peoples, Patti Ziegler and Tom Crabtree, who will talk about the steps we're taking from a marketing, direct-to-consumer and sales perspective to deliver another strong year. As Cory said, even with our increased outlook, we believe the second half will be challenging. Still, this is an exciting time to be involved in the lawn and garden category. I agree with Jim's assessment that there is a demographic and generational change happening, and I'm confident this category will benefit from the trend for some time to come. That's why I pushed our marketing and sales teams to challenge me. I told them they were unconstrained in what they asked for. As long as they justified it, I never said no. The investment in marketing is not just about growing the business in '21, it's about keeping new gardeners engaged year after year after year. Our investment in improving our infrastructure, which Jim mentioned, is also about looking years down the road. While I'm extremely optimistic about our consumer business, I am even more energized about Hawthorne. Jim said we're just scratching the surface. He is 100% correct. There are 2 important things to take away from what you'll hear in a few minutes. First, no one is better positioned to take advantage of the growth in this industry than Hawthorne. We have a better portfolio, a more complete business and real competitive advantages that will be difficult for others to match. Second, the success we've seen so far is not an accident. Yes, the growth in this industry has been significant, there is no denying that fact, but we have invested heavily in people and processes that have helped transform this business. While we have a lot of work still ahead of us, we have improved literally every aspect of the Hawthorne business. I just celebrated 25 years at Scotts Miracle-Gro, and Hawthorne remains one of the most interesting and exciting opportunities I've seen for this company. I often joke that I wish I was 30 years younger and working in this business, that's because we're doing much more than simply driving sales growth at Hawthorne. We are building something, a better and stronger business that is well positioned for the future. So yes, Jim, I am an optimist. It's hard not to be when I see all the opportunities in front of us. If we can take advantage of those opportunities, it should drive value for all our shareholders watching today. I'm going to clear the stage now so you can hear from a broader group of our leaders in both businesses. I'm proud of this team, proud to know them and proud to work with them. So I'll see you again during the Q&A session. For now, let me turn things back to Jim to transition to the Hawthorne presentations.

Thanks, Mike. Before we move into the Hawthorne discussions, I want to share some thoughts about the team you'll be hearing from today. I'm going to interject 2 other times this morning to talk about our people because I think it's an area that's too often overlooked by investors. The people you know the best here, me, Mike and Jim King, are far closer to the end of our careers than the beginning. A big part of our job these days is to work with our HR lead, Denise Stump, to make sure that our succession plans are sound. Grooming the next generation of leadership has also become a conversation with the Board of Directors. Denise, with the support of the Board, has been running a process to assess, mentor and grow a group of roughly 2 dozen people, we believe, are the next generation of leadership of this company. Many of the people you'll hear from over the balance of the day are part of that group. As it relates to the Hawthorne team, this group has done a great job across the board over the last several years and deserves a lot of credit for their efforts. Those of you who have been around a while know that they have some battle scars, and you also know that I was openly critical of the way we were navigating some of the challenges we saw in 2018. Don't be fooled into believing the strength of the marketplace is the only thing driving Hawthorne performance. What I believe they will demonstrate this morning is how far they've come in professionalizing this business. And they have quickly built competitive advantages that have put Hawthorne far out in front of the competition. You'll hear first from Chris Hagedorn. Chris is Group President of Hawthorne and an Executive Vice President of the corporation. I'm not going to dodge that Chris is my son. And I'll tell you directly, it is the hope of the Hagedorn partnership, which owns about 26% of Scotts Miracle-Gro, that Chris will be a part of the leadership team of this company. Our family has been directly involved in leading this business for 70 years. My father founded Miracle-Gro in 1951. And as we matured, most of the kids, there were 6 of us, were involved in one way or the other. My twin sister, Kate, serves on our Board and as Chair of our Finance Committee. We, the family that is, don't simply look at our ownership stake from a financial perspective. It's part of who we are, and it's our hope that another generation of Hagedorns will build on a legacy that our father created. As for Chris, he is proving himself as a strong leader and an important voice in the industry. We've given him the latitude and independence he needs to operate the business, and the results speak for themselves. The team Chris has surrounded himself with has been critical to our progress, so let me tell you a little bit about them. Following Chris, you'll hear from Dan Paradiso, who is the Chief Operating Officer at Hawthorne. If you've been around the while, you'll recognize Dan. He has spoken at Analyst Day meetings in the past when he ran our lawns business. He left the company for a few years, but worked at another firm that was still involved in lawn and garden. And then in 2018, we invited him to come back and work at Hawthorne. Chris and Dan have created a partnership that's been extremely good for the business. All of us are glad Dan decided to rejoin our ranks. Dan is going to turn things over to Jeff Kwiatkowski who is Vice President of Sales Planning and Communication for Hawthorne. Kwi, as we call him, is another person who moved from the U.S. Consumer business to Hawthorne. He led our Lowes team for a few years and also led our U.K. business when we were still operating in Europe. Kwi has done a great job at all this roles over the years and helping us understand the needs of our customers and then find creative solutions to meet those needs. What you'll hear from Kwi is how our sales processes have evolved and how we engage with our retail partners and cultivators. The second half of his brief will focus on our level of engagement with commercial operators. It's important to pay close attention because this is something that no one else is bringing to the table, but Hawthorne. One of the other things that no one else is bringing to the table is a commitment to innovation like Hawthorne. To help you understand what we're doing, you'll hear from Paula Powell, who leads our R&D efforts related to nutrients and growing media for Hawthorne. Paula is among the PhDs who work in our R&D group and is part of our emerging leadership team that we believe is critical to our future. One of the other folks in that category is Brian Herrington, who leads our external affairs efforts at Hawthorne. Brian is one of the most knowledgeable people in the country when it comes to the politics of cannabis reform. He's been on the front lines of perform efforts from California to New Jersey. More recently, he's been taking a more holistic view and working on federal issues as well. I trust you'll find his briefings to be insightful. So without further delay, let's move on.

Hi, everyone. Thanks for taking the time to learn more about what we're doing at Hawthorne. We know there's an enormous amount of investor interest in our business these days and with good reason. We also know there are a fair number of gaps in what investors know about our company. We work today to fill as many of those gaps as possible. By doing so, we hope you walk away with the firm belief that we're on the right track at Hawthorne, and we're well positioned to keep certain the needs of our customers, providing growth for our associates and driving value for our shareholders. At a high level, it's easy to look at our business and get excited about the recent growth rates and the fact that new markets are opening every year. It's also easy to listen to dialogue in Washington and believe that change is coming at the federal level, too. This industry has come a long way in a remarkably short period of time. 36 states have now authorized cannabis cultivation for medical purposes, 17 have authorized recreational use; that means that 70% of Americans live in the state where cannabis use is legal at some level. There were $18 billion worth of state authorized sales in those combined markets last year, though some believe total cannabis sales, which would include the illicit market, are worth more than 4x that number. The goal obviously is for all those sales eventually to occur within a legal and regulated framework. Consumer purchases of licensed cannabis products in the United States grew by almost 50% in 2020 during the pandemic, performed by the market research firm, BDSA. Even without federal legalization, it's expected that state-authorized sales will more than double in the next 5 years, aided by new states coming online as well as continued growth in existing markets, while the illicit market is expected to remain flat. It's a little wonder that there is a lot happening in the space, and there are a lot of players who are currently foreseeing opportunity. I'll remind you that we were among the first to do so. It's pretty odd, actually, to think that when we first launched this business 6 years ago, we had to be careful about how we described it. We rarely used the words marijuana or cannabis. And in fact, at times, went out of our way not to in those words. So let me be crystal clear today. We supply the best products for efficiently growing plants indoors, and our mission is simple: to build the world's premier business serving state-authorized cannabis and hemp growers. Our success relies in the success of the cultivators using our products. Our goal is to give them the tools to become better growers to improve their businesses and have them see our products as an essential part of their own success. We talk about brands a lot with investors. And generally, in this business, we're talking about General Hydroponics, Botanicare, Gavita and the like. What we don't talk about enough is the Hawthorne brand, which doesn't appear on any product that we sell. But the Hawthorne brand is what will define our success both in the near and long term, and it's all about putting the grower at the center of everything we do. This is what sets our business apart from everyone else in the space. Our goal is to give you a better understanding of what the Hawthorne brand is all about and the capabilities that truly differentiate us in the market. We want to help you understand the critical elements of our business: our product portfolio, our selling strategy, our commitment to innovation, our distribution network and our technical support services. But we also want you to understand how we see the future, both in terms of the marketplace as well as our place in it. We'll show you our manufacturing and distribution facilities, our R&D facilities and also show how our products are used in growing facilities. In fact, I'm recording this message in a growing facility operated by one of our commercial customers. As you walk through each of the grow rooms here, you'd find our products being used in virtually every application. What you'd also see is the highly technical nature of this industry. Indoor cannabis cultivation utilizes some of those high-tech growing methods in the world. And we're proud that our products, including the innovation that we've brought to market, are helping take this industry to a new level. Before we jump into any of that, I want to cover 3 things myself. First, our vision for the business and why we believe Hawthorne has a right to win. Second, our team. I believe we've assembled a great deal of talent here. Most of the people came from either core SMG or from the companies we acquired, but I have little doubt that we have the strongest team of any company and even the direct cannabis industry or in the ancillary space where we currently compete. And third, I want to talk about the future. I can't tell you today what the growth rate in this business will be over the long term, but it's clear that the growth potential is significant. It's also clear, to us at least, that Hawthorne has benefited greatly from our first-mover advantage. We developed an understanding of this industry that positioned us to do even more in the future. So why don't we dig in? I remember when I first encountered with Wall Street was during one of our quarterly conference calls. I said at the time that it was easy to grow a cannabis plant, but pretty hard to grow a good cannabis plant. Grown cannabis indoor remains a challenging feat, whether it's a greenhouse, a warehouse or the basement of the house you live in. Imagine the room you're in now transforming to a grow room. You need a replacement for sunlight, a way to move air, irrigation, nutrients and growing media and of course, you need something to grow the plants in. Also you need to stay on top of disease issues, that's why the humidification is so important, not to mention pest control products. And finally, whether you're a cannabis user or not, it's hard to argue this point, the plant has a strong smell. Most growers try to mitigate the odor and quite a number of state and local ordinances require them to do so. Clearly, the needs of a cultivator in this space are both complex and diverse. So if we want to be viewed as a strategic partner to our growers, then we have to demonstrate leadership in every step of the process, and that starts with the portfolio we built. We entered the industry in 2015 when we purchased General Hydroponics, the leading brand of plant nutrients in the industry, and Vermicrop, a leading growing media brand in the space. The following year, we acquired Botanicare. While also a manufacturer of nutrients, Botanicare is better known for plant supplements, growing trays and growing tables. At the same time, we also announced our acquisition of Gavita, a company based in the Netherlands that was the leading lighting brand in the industry. In 2017, we acquired Canadian-based Can-Filters, the industry's leading manufacturer for the filtration devices designed for odor mitigation. These 5 acquisitions gave us the most unique portfolio in the indoor cultivation industry. Not only have we quickly assembled the best products and brands in the space, but no one else has taken such a diversified approach. Historically, the nutrient guys only played nutrients for our media guys play there, same with filters, lighting and growing systems. But in a 2-year span, we created a cross-section, the leading brand in nearly every category. What was missing for us was a more efficient way to get to market. Before 2018, every brand in the industry, including each of ours, made its way to growers through a multistep distribution system. We sold our products primarily to 3 different distributors, they in turn sold them to retailers who, in turn, sell them to growers. A model of efficiency it was not, that's why we acquired Sunlight Supply, in a deal that remains by far the largest acquisition in the history of Scotts Miracle-Gro. By the way, while we were busy assembling an industry-leading portfolio and integrating Sunlight, we had a few other things going on as well. We partnered with Canadian cultivator to build and operate the world's first cannabis-focused R&D center. We increased the capacity of our R&D field stations in Ohio and Oregon to focus on the cultivation of hemp because it's a close proxy for cannabis. We implemented SAP across the entire enterprise, bringing us far greater capabilities than any of the individual companies we acquired could ever have imagined. We consolidated nearly all of our durable manufacturing efforts into a single location. We hired a world-class sales consulting firm to help us build a more technically proficient sales force. We invested heavily in helping shape the political dialogue of the industry, stepping out publicly in the halls of Congress, and other companies were afraid to do so. And we recently dedicated millions of dollars in our corporate foundation to take on the issue of social justice related to cannabis reform. This trip down memory lane is not for the purpose of reminiscing, it's to reinforce the mission I laid out earlier: to be the world's premier company serving cannabis growers. It's a nonstarter if you can't develop new products on your own or if your sales team doesn't understand the technology that goes into them. And in terms of having the right to win, well, that's a nonstarter too if you're not willing to put up the capital and take on the risk to win in the first place. There were naysayers when we started. Some on Wall Street wondered whether SMG as a consumer-facing business could compete in the commercial space, and some in this industry question our credentials and worried that we were only focused on making a quick buck. As we enter our sixth year in the industry, I'm confident we've overcome those concerns. This was never a matter of being B2B versus B2C, it's about using our century and a half of know-how to help people grow healthy plants, just in a different category. It was about replicating the core strength of SMG to make the business we acquired better, more competitive and more capable of going to the next level. All that rolls up to enable our right to win this industry, and we are winning. For fiscal '21, we expect Hawthorne report sales of at least $1.2 billion. We expect to report an operating margin of 12%, which is a 100 basis point improvement. We expect to have more than 20% of our sales come from our R&D pipeline, and we expect to further solidify our position as the clear leader in our industry. Investors often ask us how long it will take for us to reach our operating margin goal of 15%. Others ask why we don't do even more to build a moat around our business and driving even higher level of growth. My goal as the leader of this business is to strike a balance. If we pivoted today and focus primarily on margin, there were several hundred basis points of improvement that we could capture. I'm confident Cory Miller will tell you the same thing, but I believe this will be a shortsighted approach that would haunt us in the long run. I won't lie, it's fun to work in a fast-growing and highly visible industry, and it's fun to be part of a business that's clearly winning the marketplace. But I don't just want to win today, I want to win tomorrow and the next day. I don't want to just win this year, I want to win every year. There are a lot of people throwing around money in the space right now, trying to cash in on the cannabis industry. Some of them will. Most of them won't. And as I said earlier, it's not as easy as simply showing up. I'm a big believer in the idea of building a moat around the business. The wider and deeper, the better. So think about that list of investments I shared a few moments ago, which of those would you suggest we eliminate in the name of short-term problem? The fact is, we can strike a balance. I'm confident we can continue to grow our business, we can continue to improve our market share, we can continue to work to open new markets, and we can incrementally improve our profitability over time. By the way, one of the reasons that we're able to strike this balance is because of our integration with our corporate parents. We're taking full advantage of SMG's assets in areas like supply chain, R&D, corporate finance, public affairs and HR, just to name a few. Unlike others that are trying to navigate the space, we don't have to recreate everything. We can focus on running the business and rely on our friends at corporate to rise the air cover to do it. By no means are we ready to spike the ball and declare victory. This industry remains highly competitive and dynamic. While we expect to see new markets continue to open, we also expect to see some choppiness along the way. Also, there are some well-capitalized and well-run competitors out there who are working just as hard as we are to chip into our lead, so there's no time to catch our breath and certainly no time for complacency. Complacency is not something I worry about much at Hawthorne. You're going to hear today from some important members of my team. Dan Paradiso is the Chief Operator. He's been invaluable to our business. He drives results every day and allows me the latitude to get out in the field and meet with other leaders in the industry to explore potential partnerships and M&A opportunities and to engage Jim, Mike Lukemire and other members of the SMG team on longer-term efforts. Dan will share some of the details of our portfolio, explain our manufacturing and distribution footprint and also talk about some of the investments we're making to drive further growth. You'll hear from Jeff Kwiatkowski who's a key leader in our sales group. I expect this to be an enlightening presentation for all of you. Jeff will help you understand the complexity of this business and demonstrate the technical proficiency of our sales force and understand the needs of our cultivators who rely on our products. Then you'll hear from Paula Powell, who's a key member of the R&D team, has been absolutely essential to our success. Innovation is and will continue to be one of the cornerstones of our business. It's an area where it leaps and bounds ahead of everyone else and has quickly developed as a competitive advantage that we must leverage even further. Finally, you'll hear from Brian Herrington, who leads external affairs for Hawthorne. We've been actively engaged in the political dialogue in this space for years, well before any company I can think of. Brian's engagement in these issues has been critical for our business time after time. The mention of Brian's work brings you the final point I want to cover, and it's important, the future of Hawthorne in this industry. I'll start with this. We believe more states will legalize cannabis in the next 2 years, and it's possible to see some form of federal reform during that period as well. The misconceptions in stereotypes about this industry and its products continue to be set aside with each passing day. You'll hear more about that later from Brian. As a result, we expect cannabis consumption, especially legal consumption, to rise significantly in the years ahead, with THC being used in products like beverages that are yet to be introduced in the American marketplace in a meaningful way. And you can't have high-quality cannabis products without healthy high-quality cannabis plants. The opportunity for Hawthorne to continue to benefit is obvious. As new markets open, especially on the East Coast, we would expect to see a geographic shift in our business as well. But do I expect to see California be anything less than our largest market in the country? Not a chance. The market there is well entrenched and our brands are as well. New grower facilities are still being built, and old growers are still being retrofitted. Also, the annual increase in our consumer demand in California is greater on its own than the total size of the market in some of the new smaller states coming online. Regardless of the size of each market, the one thing they have in common is increased consumer demand, and what we've seen in state after state is that per capita consumption of legal products rises every year. Even in the most mature rec market of Colorado, the first state where recreational use was approved, we continue to see an increase in per capita use. From 2013 to 2019, Colorado has seen a 4x increase in its per capita sales, with state legal sales surpassing $2 billion in 2020, up 26% over 2019. This growth can be attributed to long-time cannabis users utilizing the legal channels as well as new consumers embracing new forms that allow for more discrete and easier usage. And despite what you might have heard in the past, we see federal legalization as a good thing for our business. If federal legalization happens, as some key democratic centers have been suggesting with a bias towards protecting the rights of individual states and small business operators, it could be even better, not just for us, but for the thousands of cultivators and dispensaries that are operating state-authorized markets today. I realize all of you want to know how we're thinking about the annual growth rate of this business over the next 5 years. Is it 10%, 20%, 30%? I wish I could tell you. Jim has already addressed this to some extent. The truth is, if at any given year, it could be any of those numbers. Obviously, the growth has been a great deal higher than that lately as we've posted 4 straight quarters of more than 60% growth. While we don't expect the current rate of growth to remain a standard, it's hard right now not to see meaningful double-digit growth well into the future. In terms of our current daily sales volume, we've continued to see strong performance across the business. Cory already told you that we're trending to the higher end of our guidance range of 20% to 30% growth. And you've heard from others already, we're still working hard to get our inventory levels in the right place because we know service levels are an important part of our relationship with our customers. Last year, we struggled to keep up with demand, and that's not acceptable moving forward, so we continue to work hard to get that right. And finally, we are actively looking at M&A opportunities. We like our portfolio. But we do have a few product gaps, and there are existing categories where we can get stronger. There are also capabilities we can acquire to make us a smarter business, and there are thoughtful bets we could place that'll put us in a better position if and when the federal landscape shifts. We will not chase growth just for the sake of it. In fact, we've walked away from deals we liked because the asking prices just didn't make sense. There are plenty of places for us to invest, but we're going to take the same strategic approach to every step we take, just as we have from the very beginning. As I prepare to turn things over to my team, I'll say my only regret about this format is you only hear from 5 of us today. I wish you had the opportunity to hear from our Head of Marketing, of supply chain, of legal, of HR and other areas. While I'm proud of the results we've posted over the past few years, I'm even more proud of the people behind that effort. Our team believes in the mission. They get it. They see the long-term opportunity out there and are energized to be part of what they believe will be the winning team in this industry. I'm energized by it as well, which I hope has been evident to all of you today. Thanks again for listening. I look forward to hearing your thoughts and questions later in the day. Next up is Dan Paradiso, Chief Operator of Hawthorne.

Thanks, Chris. Hello, everyone, and thanks for watching today. My goal this morning is to give you the nuts and bolts of the business. I want to help you better understand the Hawthorne product portfolio, the geographic breakdown of our business, our opportunities to improve our profitability and our operating footprint. I'll also discuss some of the opportunities we see that can make us even stronger. Before I dive into my presentation, I want to share just a few personal thoughts. Jim already mentioned that this is my second trip around the track at Scotts. I'll be honest. When he called and asked me if I wanted to return to the company and work at Hawthorne, I wasn't sure. The business didn't even exist when I left, and I didn't know what to expect. Not only that, but 2018 was obviously a pretty tough year, and that made me pause even more. But the more I study the opportunity, the more interested I became. What became evident was not just the growth opportunities at Hawthorne, but the ability to build a large strategic business. We've made a great deal of progress over the past 2 years, and there remains a lot of upside here. So I'll say, I'm really glad Jim called, and I'm really glad I said yes. Okay, let's dive in. I'm going to focus my remarks solely on our North American business. We have over $100 million of revenue in Europe, nearly all of it comes from lighting. Is there a longer-term potential there? Yes. Is it a good business? Yes. But for today's meeting, our focus is on North America. Also for reference, when we talk about North America, it's worth noting that more than 90% of those sales come from the U.S. You know the growth story already, but this slide shows just how dramatic the climb has been. Of course, in the early years of Hawthorne, we benefited from our acquisitions and organic growth. But since the acquisition of Sunlight Supply in 2018, it's been purely organic growth, and we have more than doubled the size of the company. When we completed the Sunlight deal, our sales were pretty evenly divided between durable products and consumables. That split in North America today is closer to 60-40. These charts show you the breakdown of each side of the business. The largest category in durables is lighting, and the largest category in consumables is nutrients. The key to this change has been innovation. Sales in lighting increased more than 100% last year, driven by nearly a 400% increase in the sale of LED units. The demand for these products was so strong in 2020 that we struggle to keep up all year. And by the way, we have already sold more of these units in the first 5 months of fiscal year '21 than we did all of last year. You'll hear more in a few minutes about another LED innovation coming to the market from our Gavita brand. So we believe there is still a long runway in front of us for our lighting business. To be clear, our consumables business did great last year too. Nutrients grew almost 50% and growing media grew 62%. These are very strong numbers for the consumable category. Another trend that continues to work in our favor is the split between sales of our brands we own ourselves, which we call signature products, versus distributed products we sell on behalf of others. Remember, prior to the Sunlight deal, we only sold products with our brands: General Hydroponics, Botanicare, Gavita, Can-Filters and Vermicrop. And while Sunlight owns some proprietary brands like Sun System lights and Mother Earth growing media, it was primarily a distributor. In fact, more than 2/3 of Sunlight sales came from distributed products, of which almost 1/3 or 1/4 of the total business were Hawthorne products. In fiscal 2019, after we closed on Sunlight, 57% of our sales came from our signature lines. That number was almost 2/3 of our total sales at the end of Q1, and we believe we could inch closer to 70% by the end of the year. I'll remind you of 2 things. First, that improvement was purely organic. We have not made any other brand acquisitions over the past 3 years. Second, our goal for the 2021 split between owned versus distributed products is essentially the exact opposite of our closest competitor. You've already heard from Chris and you will hear more from Jeff in a few minutes about the differences between being a strategic partner and a transactional partner. If there is 1 data point in our portfolio that proves the importance of this issue, it's the percentage of signature sales. The improvement also shows the importance of properly investing in our business. Our conversion to SAP put a bright light on a number of weaknesses, one of which was the fact that we just had too many SKUs. When I started in 2019, we had more than 6,500 SKUs. Today, we have 2,100. By rationalizing the line, we not only improved margin, but drove a higher percent of sales to our signature products, our brands. Let me elaborate a bit further here. Chris also told you we're trying to strike a balance between growth and profitability, and I know many of you ask about the margin profile of the business and how we can improve it. I'm not going to be overly specific here, but it's important to know that the margin profile of our signature business is much closer to the company's U.S. Consumer segment than you might think. On the distributed products, the margins are pretty thin. It's easy for an outsider to say we should walk away from that part of the business if the margin rate is that challenging. But this, again, is where putting the grower at the center of what we do leads you to another decision. Many of the distributed products we sell are essential in nearly every commercial operation, so I believe the split of 70-30 is pretty close to where we want to be given the importance to the growers of our current distributed products. So we are unlikely to ever be in a position where we only sell signature products. Instead, our goal is to form stronger strategic relationships with our distributed product partners. We have exclusive distribution agreements with several of these partners already, and we will work to have more in the future. Let's move on and talk about the geographic breakdown of the business. California is still, far and away, the largest market we serve and drives about 45% of our sales. This number was about 10 percentage points higher 3 years ago. Still, investors are often surprised by the strong growth rates we continue to see in California, which are in line with the overall average. Two things are happening. First, there is continued growth in the market. Growers are coming online and others are expanding their footprint. Second, a significant number of existing growers are retrofitting their facilities with LED lights and other equipment. The fact that LEDs use less electricity means they often qualify for rebates to help offset the costs. Also growers are seeing great results in their crops when they use these lights. You'll hear more about this issue from both Jeff and Paula in a few minutes, but I'm confident there is a lot of upside for LEDs still out in the market. Outside of California, the next 9 states which are listed in order on the slide, make up just under 40% of our sales. People will certainly ask, what about the states that just went legal? Brian Herrington will talk later about the lag between the voters decide to legalize and the actual market having product for sale. But if you look at the 5 states that just voted to change their law: New Jersey; Arizona; Montana; South Dakota; and Mississippi, you'll see we had combined sales of just $20 million in those markets last year. Once the markets are up and running, we'd expect to see dramatic growth rates. And the changes in New Jersey, we believe, are likely to create a domino effect in the neighboring states and create a nice runway for growth over the next several years. Let me pivot again and talk about our operating footprint. Because Hawthorne is a product of an aggressive acquisition strategy, we had a pretty diffused network just a few years ago. But since the Sunlight deal, we have consolidated 7 different manufacturing facilities into 2 primary locations. Most of our durable manufacturing, including lighting, benches, filters and other hardware, are manufactured in Vancouver, Washington. We purchased a good number of the components for our signature lighting brands in Asia, and they are assembled in Washington. Today, all of our liquid manufacturing occurs in Santa Rosa, California, which was where General Hydroponics was based. While we have worked to consolidate our manufacturing footprint, the opposite is true for our warehousing and distribution facilities. Our warehouse footprint has grown from 840,000 square feet in 2019 to an excess of 2.2 million square feet, adding another 1 million square feet as well as 2 more distribution facilities in fiscal year '21. During that same period, our headcount will have increased by 125% as well. These investments are allowing us to do a good job staying in front of the market. Let me give you an example. One of the new distribution facilities we're opening this year is in New Jersey, so we're setting ourselves up nicely to handle more East Coast volume in the future, but those kinds of investments are likely to continue to be necessary as we look forward. The other challenge, which Jim mentioned earlier, is getting our inventory levels closer to where they need to be. I was there. I saw it. We did leave sales on the table last year. And our service levels, while better than our competitors, were not where we want them or need them to be, but I'm glad to say we are making tremendous progress on this front this year. As I wind down, and I want to return to one of the first slides I showed you, the remarkable growth curve of the business. We obviously believe strong growth opportunities still exist and will for years to come. And since none of us could have predicted a doubling of the business in just 2 years, it's no wonder that the system is a bit stressed right now, so the operating team is working closely to examine the needs of the business and to work with our corporate partners to make sure we continue investing in Hawthorne like we should. While I would have enjoyed presenting to all of you in person today, I'm glad to have the opportunity to at least share our story virtually. I hope I've given you a better understanding of the business and also helped you better appreciate why I'm so glad to be back at Scotts Miracle-Gro and to be part of the Hawthorne team. Thanks for listening. I will now turn it over to Jeff for insights on the sales front.

Hello, everyone. Over the next few minutes, I'm going to help you understand what we're doing to better serve our customers from a sales perspective. There are a lot of things that have changed dramatically at Hawthorne over the last several years, and how we manage sales is right at the top of that list. I believe we have brought a level of professionalism, business insights and technical capabilities to this category that set us apart. That improvement hasn't just made us more efficient, but also has made a big difference to our retail partners and the cultivators who use our products. Out of the gate, I want to stress an important point. No one in this industry is doing what we are doing. In fact, you'll hear me use the word exclusive multiple times in this presentation. This is particularly true when it comes to meeting the needs of our growers who use our products. If the grower succeeds, we succeed. As Chris said, we view ourselves as strategic partners with both retailers and cultivators. We are not interested in simply being transactional. In the second half of my presentation, I believe you'll get a much better sense of what I mean. First, though, let me give you some broader context about our customer base. As you know, we do not currently sell directly to growers in the United States. As a result, we have to be flexible and customer-focused on how we transact our sales in the U.S. We work with growers of all kinds to help them understand the products they need, how much, how many and where. Most importantly, we help them understand how all product solutions need to be meticulously coordinated to create the optimum growing environment. One of the first questions we ask any cultivator we work with is, who is your retailer of choice to purchase from? Most licensed cultivators have a local retailer where they already have an existing purchasing relationship and have for years. We respect and complement those cultivator and retailer relationships, that is why the vast majority of our sales are still through traditional retailers. Some cultivators don't have a preferred transacting partner or are unhappy with their existing purchasing relationships. In those instances, we provide them with alternative ways to acquire our products in a way that suits their needs. Again, this is all about what the cultivator wants, and our business is set up to service them at their choosing. In the U.S., we have roughly 1,200 retail accounts, operating a little more than 1,400 stores. In Canada, there's another 200 accounts. Additionally, online sales account for about 5% of our business today. Let me share a bit of detail on the relative scale of our retail partners. We break down our retail customers into multiple levels based on their relative size. There are roughly 100 customers in the first 3 levels combined, and they drive approximately 70% of our revenue. The other 1,100 customers make up the remaining levels, and they drive the remaining 30% of our sales. If you know the SMG story, you know that this is vastly different from what we have in our U.S. Consumer business, where I used to work leading our Lowes business development team. At Hawthorne, we have only 1 customer with about 50 rooftops, so there is a long tail to our business. The approach we take to doing business with these retail partners is focused on transparency and overall consistency. There is a standard pricing grid that applies to all, but retailers can qualify for incentives based on their overall level of support of our brand portfolio and performance. This is in contrast to how many manufacturers and distributors in this industry operated just a few years ago. Remember, Hawthorne is the result of a number of acquisitions over time, so we inherited a pretty inconsistent approach to selling that we quickly had to adjust. As part of the integration, we created a comprehensive program that harmonized the previously disconnected brand-level programs that we acquired. Because of these changes, we can avoid, for example, 2 retailers operating across the street from each other, having a fragmented incentive program that they may have experienced with other manufacturers and distributors or pre-acquisition. Our aim is to offer simplicity and a platform for mutual success. Every Hawthorne retailer understands what they pay for each SKU and why. We also help them understand the various incentives we offer that correspond with the levels of support and sales growth performance. This level of transparency isn't simply a win for retailers, but it's a huge benefit for us. It helps us with customer program margin insights and with sales growth planning by customer mix. It also provides insights as we implement pricing and trade decisions. Going forward, we're looking to implement even further changes that will be exclusive to Hawthorne. We believe the approach we've taken is already well ahead of our competition, and so I don't want to be overly specific on our next steps. But I will say, we are working to give our retailers better visibility into their own businesses and help them manage inventory more effectively. So I want to pivot here and talk to you about the ways we serve multistate operators and large-scale licensed commercial facilities. We believe our approach is far ahead of what anyone in our industry is doing or is able to do. Chris explained earlier how complex an indoor growing facility can be. You are recreating nature to some degree, and the margin for error can be pretty small. Disease can spread quickly within a growth facility and decimate a crop in a matter of days. Also, the smallest mistakes in the design of a facility can have significant implications. It could result in higher operating costs or lower plant yields, either of which could have a significant financial impact for the grower. When we sit down with a multistate operator, or MSO, as well as a large-scale licensed commercial cultivator, we start with a slide like this: Hawthorne 360, an end-to-end turnkey solution for growers. I won't walk you through every step of the process, but I want to share enough with you to help you understand the highly technical nature of this business, our selling process as well as our services. It starts with the team we bring to bear. Large-scale licensed commercial customers and MSOs have the ability to benefit from a team that includes degreed horticulturists, biologists, soil scientists, engineers, economists, designers and cultivators. Building this type of industry-leading talent is a direct result of the relationship we have with our parent company. Jim and Chris both said it, for 153 years, Scotts Miracle-Gro has helped people grow plants. Hawthorne customers are not interested in lighting or fertilizer or irrigating. They're interested in growing plants. It's their livelihood. There are dozens of one-trick competitive lighting, nutrient or growing media manufacturers in the market today. To my knowledge, none of them, that means zero, combined Hawthorne's OEM capabilities, the Hawthorne 360 solution and the Hawthorne technical expertise that we bring to the table every day. We put cultivator success at the center of every conversation and provide holistic facility solutions to support them. So we have a diverse team, great. What do they do? We start by understanding the cultivator's needs, whether that is to design, build, retrofit, expand or address problems in their existing operation. If we focus for a moment on the design, build and expansion process, the sequencing of how a facility is designed is critical. Every sequence and step are interdependent and must work together, and that makes it all the more important to support a grower with a holistic approach, including a broad portfolio of products. There are simple things like how much power a grower has available. We've had a major customer call us to retrofit a facility because a competitor's lights kept failing. It turned out the lights weren't the problem at all. Because of the way the lighting plan was designed, the electrical wiring in the facility was the problem. Our lights would have failed too. The difference is that our competitor never looked at the wiring. All they cared about was the transaction. We cared about the success of the grower and delivered a long-term solution, not just a sale. Our Hawthorne 360 process always begins with a full evaluation of the entire site. We then review, in the cascading order you see on this slide, the sequence and detail of each growing environment component. All of these products and components are dependent on each other to work in harmony. You cannot have a lighting discussion until you understand the benching layout review. You cannot have talks about HVAC or airflow mapping until you know and understand everything listed here beforehand. If the process is not followed and if harmony within the growing environment does not exist, disaster will strike. To give you a very basic example, the photo you see here is a grower here in the United States. The grower was struggling throughout the facility to get plants to grow at the right rate to deliver the expected yield. You'll notice the lights are directly over the aisle in the facility. They're supposed to be over the top of the plants. This was a huge and costly mistake that occurred before the first plant was grown. It's a mistake our competitor never saw because they didn't take a holistic approach to understand the entire facility. The singularly focused competitor only wanted to transact a lighting job and did not ensure that the customer understood the total cultivation facility plan. Those are 2 simple instances where the differences between being a comprehensive strategic partner versus transactional was critical. We have hundreds of examples just this year that are far more nuanced. One of the other things we help the grower understand is the net operating cost for their operations. In many areas, products that draw electricity have the opportunity to qualify for an energy rebate. For example, traditional high-pressure sodium, or HPS lighting fixtures, are far less expensive than LED fixtures, but HPS fixtures consume much more electricity and create significantly more radiant heat. That increases HVAC costs and other temperature and humidity factors that can create complications within a room. Hawthorne has an exclusive relationship with a third party that scours the market for available energy rebates for growers. both on lighting and other components. Because LEDs are so much more efficient, a lot of energy companies provide rebates to growers for buying and installing LED lights so we can help them lower the purchase price of a light and their ongoing operating costs. After the design and selection process, we also help customers visualize the space. This is far more important than simply presenting an animated look at the room. It helps us avoid mistakes due to other architectural design elements in the room. It helps us make the best product recommendations by ensuring that we've got the footprint right, the flow of traffic right and that we maximize the room to its fullest extent. It provides a virtual look at the finished product and is simply another technical service exclusively offered by Hawthorne. One more thought as it relates to our Hawthorne 360 approach to sales. There is plenty of competition out there, and I have no doubt a commercial operator can get a cheaper price on lights or nutrients or any other input if that's all they care about. But who do you call when your third or fourth party non-manufactured or own brand lighting fixture doesn't work or if you need troubleshooting support or if you call when your nutrient blend and the fertilizer is too hot? Or who do you call when you need products to address dead directional airflow pockets in your large grow room? The answer, you're pretty much on your own. But if you work with Hawthorne, you call us. You call us directly. As Dan said, our manufactured and owned brands will likely make up 70% of our total revenue this year. We control our own product performance and service destiny. Our competitors have a drastically different mix. We are there for ongoing technical service. We're there for warranty and claim support. We're there for service and replacement parts, and we're there to simply troubleshoot if something in the facility isn't performing like it should. Simply put, we are the growers' strategic partner. In a few minutes, you'll hear from Paula Powell, a key member of our R&D team for Hawthorne. The insights we get from Paula and her teammates already make our sales team more effective, and the exclusive trials that they're currently conducting will take us further down the path of providing data-driven technical solutions for our customers. This is a fast-moving industry. With every new market, there are new investors, new growers, new customers. As Chris said earlier, it's easy to grow a cannabis plant, but quite difficult to grow a good cannabis plant at scale. As more growers enter this space in the years to come, we are confident Hawthorne will be the partner of choice as they realize we are really the only player in the industry who can offer them such a wide range of exclusive professional services. I could have spent twice this amount of time sharing more details about our process, but I hope you found my comments useful and that they've helped you broaden your understanding of what we're doing to drive value at Hawthorne. Thanks for listening. Now let me turn the program over to my colleague, Paula Powell, to talk about the steps we're taking to drive innovation at Hawthorne.

Hello, everyone. I'm Dr. Paula Powell, and I lead several of the R&D groups driving our innovation efforts for Hawthorne. At the outset, let me state that our goal is to drive innovation that achieves the maximum genetic potential of the plant in yield and quality. In our genetic research program, we strive to take the potential of plants to new heights. This translates directly to grower profitability. Over the next 10 minutes, I will tell you how we are going to achieve this goal. Let's start by talking about our R&D capabilities themselves. I'll begin with our R&D facility in Kelowna, British Columbia, the only facility in the world dedicated to cannabis cultivation research. We have a team of 9 people there that collaborate daily with over a dozen of our lead scientists in the U.S. on trial protocols, data analysis and results. The facility has 20,000 square feet dedicated to cannabis cultivation research divided into 10 grow room. Each of the grow rooms can be controlled independently to create specific environmental growing conditions similar to a commercial grower. The building layout allows us to conduct simultaneous but distinct trials that are focused on lighting, nutrients, growing media and growing environment inputs. We also have post-harvest drying and curing rooms and an analytical lab that allows us to analyze plant chemistry in addition to traditional plant growth measurements. I want to reemphasize that an exciting aspect to the Kelowna facility is that we can conduct trials with all our products commercially available or experimental while mimicking the exact conditions in most indoor growing facilities. We can examine how our nutrients pair with different growing media, how application rates and timing differ under different grow lights and how the grower may adjust irrigation patterns in a way that crop performance is maximized. We can study the connected system. Plus, we aren't studying our products in small reach-in grow chambers like a university might do. We put ourselves in the same shoes as the growers who we are trying to serve. Furthermore, our Kelowna facility enables competitive product testing in order to validate the superiority of our product versus the competition. However, not everything needs to be tested on high-THC cannabis to gain insight for product development. That's why we also use our licensed R&D facilities in Oregon, Florida and Ohio to conduct research tests on hemp. Hemp is very closely related to high-THC cannabis, so it serves a great proxy crop for research. At these field stations, we can conduct both greenhouse and field trials to complement the work done in Kelowna. Moreover, we can tap into the extensive resources at our SMG headquarters in Marysville to execute comprehensive analytical testing and utilize our state-of-the-art formulation facilities to develop new experimental products. At our Hawthorne West Coast headquarters in Vancouver, Washington, we have tremendous capabilities to develop lighting innovations. We have specialized lab equipment such as our integrating sphere and goniophotometer, which are used for developing and qualifying new lights and controllers. We also have a certified satellite ETL lab for rapid compliance certification. These tools are critical to rapid innovation and outpacing our competition. Understanding how to use sophisticated facilities and equipment to the benefit of our customers is our competitive advantage. As Chris told you earlier, the grower is at the center of everything we do. And growing plants to produce consistent yield and quality is a task far more difficult than it sounds. In order for you to understand some of our efforts, it may be helpful if I first explain the basic growth stages of the cannabis plant itself. Think about the plant's growth in 3 stages: propagation, vegetation and flower. It is a common misconception that cannabis plants are grown from seeds. They can be, but generally are not grown this way in commercial growth. Instead, a grower will take cuttings or propagate from what is called a mother plant. The cuttings are then transplanted into small cubes. The new cutting is very tender during propagation. It needs very low-intensity lighting and a supportive substrate while it takes root and begins to grow. The story changes, however, at the vegetation and flowering stage. This is when high-intensity lighting, the right growing media and nutrient management becomes necessary. In the vegetative stage, most growers will keep the plant under light for about 16 consecutive hours a day. This mimics the longest days of the year in nature. During this stage, the grower is managing nutrients and water in a way that builds healthy uniform plants capable of setting and supporting multiple flowers. Once the plant is ready for the flowering stage, the intensity of the lighting is increased even further, but the duration is cut to 12 hours on, 12 hours off. This sequencing triggers the plant to form flowers, which are grown for several weeks until reaching full maturity and then harvested. During the flower stage, the grower also changes the nutrient management program and other growth factors to favor flowering instead of vegetative green growth. The focus is to drive flower yield, which results in the creation of terpenes, flavonoid and cannabinoids within the plant. This entire process may take 10 to 12 weeks, enabling 4 to 5 crop turns a year. If you're growing outdoors, the process takes closer to 5 months. So given the change of seasons, growers typically turn only 1 crop a year. This background is helpful to understand the subtleties of cultivating the best crops and also supplies the road map for our innovation. From lighting and engineered products to growing media, nutrition and pest management, there's so much to exploit to enhance the grower experience. Beginning with lighting. The traditional source of lighting in a growing facility was the high-pressure sodium light, or HPS. These have been the preferred choice of professional growers for decades. Our own Gavita 1000-watt HPS has been the industry gold standard, but HPS lights consume a significant amount of electricity, 1,000 watts per fixture. At the same time, they generate a ton of heat. Growers usually need to cool the grow room to prevent the plant from getting too hot and reduce plant stress. So it's not surprising that growers are turning to LED. It's not just the financial savings, but LEDs also have significantly lower carbon footprint as well. It is only recently that LED technology and costs have improved to the point where they are not only effective for growing plants, but also an affordable investment for growers. LED grow lights can now deliver the light energy the plant needs using about 20% to 30% less electricity. Thanks largely to our in-house efforts, we were able to create the Gavita 1700e, which has quickly become the newest lighting standard in the industry. Our newest LED innovation, the Gavita 1930, is just now hitting the market. This compact LED is designed to be a one-to-one replacement with HPS lights. The Gavita 1930e is designed with the light intensity and light distribution patterns that match the HPS standard. Just disconnect the HPS light, connect the 1930e light, and you're back to growing. Yet every good botanist knows it takes more than just lights to grow a plant. And Hawthorne doesn't just want to grow plants. It wants to grow the best plants. Nutrition, temperature, moisture and air are all key. That's why our nutrition and growing media are also at the leading edge of our innovation efforts. The proper application of nutrients during the right stage of development can increase yields by over 10%. Understanding the nuances of fertility and supplemental additives that impact yield, terpenes and chemical content are some of the most important trials we're currently conducting in our grow rooms. Some commercial growers value flexibility and seek supplements to their base nutrient system to enable precise nutrient delivery at specific times in the growing cycle. But we also know some growers seek top plant performance with straightforward simplified solutions for their growth. No matter the need, we are working to develop new nutrients and supplements that result in both higher yields and higher-quality plants that pay back immensely for the grower. Innovation and growing media is also a critical part of our efforts and is driven by 3 areas of focus: first, the development of state-of-the-art methods of measuring substrate properties; second, high-performance product specifications; and third, process controls to ensure our products are made the way we design them. This disciplined approach allows us to transform commodity ingredients such as coconut core into highly-engineered value-added products that deliver predictable outcomes on plant yield and quality. Growing media is used in 2 ways in commercial growth. Some growers usually growing media. You might think of that as a super higher-quality equivalent of our consumer growing media products. Other growers use preformed growing media such as synthetic cubes and blocks. While both are common, most industrial growers choose the cubes and blocks because of their cleanliness and efficiency. Our innovation efforts are taking these preformed media to a new level of performance. We believe this work will result in important new product offerings that meet grower needs and enhance their profits. The final potential use of technology is the plant itself. Over the years, we've used crossbreeding and biotechnology to develop improved strains of grass and ornamental flowers. Lately, we're exploring whether we can use our understanding of plant genetics in this category as well. Our efforts have paved the way for us to be a pioneer in the genetic space. While our work is still in the early stages, we believe the potential is significant and could provide meaningful opportunities if and when cannabis cultivation is legal at the federal level in the U.S. I would have enjoyed providing more specific examples for some of our trial work, but we don't want to get too far ahead of ourselves in our public discussion. Suffice it to say, the R&D pipeline is extremely full on the Hawthorne front. And we're confident the pipeline will develop significant growth opportunities for us in the years ahead. I appreciate your time today. And now I'm happy to turn things over to Brian Herrington to discuss our view of the political landscape.

Hey, everybody. I'm Brian Herrington, and I lead external affairs here at Hawthorne. I've been with the company for 10 years now, but spent nearly all my time over the last 4 years supporting this side of the business. Much like Dan Paradiso said earlier about his own experiences, I've also found working in Hawthorne to be one of the most rewarding parts of my career. I'll provide the details in a few minutes about how the political landscape is evolving. But what Chris said earlier is correct. We're going to see more states legalize. And I believe it will happen quickly. I also believe federal reform is coming, too, though perhaps slower than most people think. Before I jump into those details, I want to spend a few moments explaining the extent of our public affairs efforts. I don't believe you'll find another company that has done more in the political space than ours to improve the understanding of cannabis issues. And that is true with the local, state and federal level. One of the most gratifying parts of the job is that this topic is unique and no one has done this kind of work in the past. And one of the other rewarding aspects has been our willingness to invest to do it right. Mike Lukemire said earlier that he has urged his team to be unconstrained in what they're asking for as long as they can justify it. Jim King, who oversees all the government relations work for the company, has given me and the team similar guidance. Chris Hagedorn has provided the business support and expertise that is required. And as a result, we're in a great spot. On a company-wide basis, we currently have 7 people dedicated to government relations, 3, including me, work exclusively on Hawthorne issues, primarily at the state and local level. Most of the others on the team spend a significant portion of their work focused on Hawthorne as well. Also, we recently hired a Vice President of Federal Public Affairs, who will be based in D.C. and will focus primarily on Hawthorne. This person served in a highly visible role in the Obama administration for 7 years working with Congress on a daily basis. And he has extremely relevant corporate lobbying experience over the past 4 years. He will lead our engagement with the administration, Congress and regulatory agencies as the discussion about federal cannabis reform continues to take shape. So he's a big addition to the team. We also utilized lobbying firms in 19 states and have 2 federal lobbying firms, 1 with Democratic ties and 1 with Republican. We are active participants in state-level trade associations like the United Cannabis Business Association in California, The New York Cannabis Growers and Processors Association and many more. We will also continue to help establish a voice for the industry federally as part of the Minority Cannabis Business Association, Cannabis Trade Federation, the newly formed United States Cannabis Coalition and other efforts that complement our strategy. So let's spend some time talking about what we're seeing right now and what we believe it means going forward. Let's start with some polling data. Voter attitudes continue to embrace cannabis reform. State and national polling continue to show year-over-year growth and support across all demographics. In addition, voter support is growing across political parties, making this a nonpartisan issue. This was even noted by Trump Ulster, Tony Fabrizio just last year. The well-known statistical analysis shop FiveThirtyEight analyzed data from Gallup and Pure Research to rank issues that are the most political polarizing and found that the legalization of cannabis was the least polarizing political issue. If you want proof, consider this, cannabis legalization efforts are garnering more votes statewide than the most popular political candidates. In 2016, Donald Trump received 48.6% of the popular vote in Florida. Cannabis legalization received 71%. This year, Biden got 49% of the vote in Arizona, and legalization got 60%. And if you want to know how fast things have changed, consider this. In 2012, when Colorado and Washington legalized, national support for the issue was polling at 51%. Today, it's 68%. So the map is going to continue to evolve. Here's what we believe to be a likely scenario over the next 2 years. New York in the last several days has finally approved full adult-use legalization. Legislators have worked through questions related to social equity, along with teen access, impaired driving and other legitimate concerns that opponents often raise. A big part of the reason New York has moved is related to economics, and that's true in a growing number of states. COVID has had a brutal impact on state revenue streams and job numbers. Legalization helps on both fronts. In fact, a recent economic impact study from The New School suggested the state can generate tax revenue of $765 million annually in a few years and create more than 50,000 new jobs from legalization over the next 3 years. Citing similar reasons, junior lawmakers last month voted yes on legalization. Pennsylvania's governor has consistently been a vocal supporter, but you'd be wrong if you thought this was just a blue state issue. This past November, Arizona, Mississippi, Montana and South Dakota residents voted in strong majorities to legalize. In Texas, 60% of voters now support legalization. A decade ago, polling indicated a majority of voters there were opposed. Polling also shows support for adult-use legalization in North Carolina and Ohio. Just 4 years ago, about 2/3 of Ohio voters said no to adult use. The state legislature then voted to approve a medical market. So I believe the state political map could look like this within 2 years, as many as 7 more states having legal adult-use markets in all but 10 states allowing for medical use. It's worth pointing out, though, that not all states are created equal when it comes to the rules around legalization. States like Oklahoma and Michigan have little to no limits on the number of cultivation licenses that can be issued. This helps explain why we benefited from such significant growth in those 2 markets. States like Florida put strict limits on licenses. While we do not know all the rules yet in New Jersey, we do know that they are limiting large-scale cultivation licenses for the first 18 months. And there are no limits on micro businesses, which can grow up to 2,500 square feet. This is why the work of our sales force in providing technical services is so important. It's also important to understand the difference between legalization being passed and the marketplace opening up. Whether legalization happens through a ballot initiative like Massachusetts or legislative action like Illinois, it typically takes 12 to 24 months before the first licensed product is sold to consumers. The delay is due to the need for state regulators to set up the rules of infrastructure. They need to review business applications. In most cases, operators do not put shovels on the ground until they are assured a license. Let me move on and talk about the federal landscape, which is more difficult to predict. Remember, I said earlier that this is not a polarizing political issue. The question in DC is not whether cannabis reform should happen, but how. There is finally solid support at a high level. However, questions around social issues like expunging past criminal records may prove to be a pill too big to swallow for most republicans. When you understand the rules of Congress and the number of votes needed to move legislation, there is still significant work to be done. Even if there was bipartisan support to get something done, the issue is more complex than most realized. It goes well beyond whether legalized or not legalized. Here are just a few of the questions Congress needs to address if cannabis is made legal. Who will the regulatory agencies be? Will the plant be regulated or just the end product? Will federal licenses be required for cultivators? How will social equity be incorporated? How will Congress ensure that the hundreds and thousands of jobs, thousands of businesses and billions in tax revenue in states that have an existing legal market are not wiped out in a new federal market? There are several well-known pieces of legislation that many of you may be familiar with, and Congress may attempt to tackle some of these issues. So let me address each of them. Let's start with the STATES Act, which essentially would have allowed cannabis use for any purpose to be legal if the state authorized it without otherwise changing the federal law. The bill is effectively dead. It was introduced by Colorado Republican Senator Cory Gardner. It was never fully embraced by either party. And of course, Senator Gardner lost last November to Democrat John Hickenlooper, who is an advocate for broader reforms. Then there is the MORE Act, which got a lot of attention last year after it past the house with bipartisan support. While we're glad to see it pass, we also had concerns about MORE because so many of the questions related to regulatory structures were not addressed. Still, many saw this as an easy yes vote for House members because everyone realized it would not be taken up in the Senate. Observers now feel, with the reduction in the Democratic majority on the House side, the MORE act will face a much closer vote. And then there is the Safe Banking Act, which some predict would open the banking system up to all aspects of the cannabis industry. Access is one thing. Actual granting of credit and other services will take time as the market is still in its infancy and risk factors need to be understood. This is a measure that we were actively engaged in and passed the house with strong bipartisan support. In fact, POLITICO singularly credited our efforts in helping Republicans get on board with the issue. However, this is another measure that stalled in the banking committee of the Republican-controlled Senate. While some believe there is a chance for SAFE to get another airing, the Senate may prove a problem again as a democratic leadership of the same committee has found not to approach cannabis reform with a piecemeal solution. So where does that leave us today? Actually, in a much better place than it may sound. Senate Majority Leader Chuck Schumer joined by Senator Booker of New Jersey and Senator Wyden of Oregon have announced their intent to introduce significant cannabis reform legislation in the few weeks ahead. We view the approach that Senate is taking as a potential best-case scenario for existing industry and Hawthorne. Leader Schumer has publicly stated that he will only support an approach that protects small business operators. In other words, the current base of Hawthorne. The senator is about to make it difficult for significant consolidation. Also, there appears to be some support to allow existing state regulations to continue to govern the market until a federal regulatory framework could take shape. It's worth noting that hemp cultivation has been legal for 3 years now, and there is still not a complete federal regulatory structure in place to govern that marketplace. I've worked in and around politics literally my entire adult life, so I offer this caution. It all could change tomorrow. Still, from my perspective, I believe some level of federal reform is likely, driven primarily to the social justice concerns that few people will dispute. But the more complicated issues related to the regulatory framework could take years to work out. Like my colleagues, I could spend a lot more time talking about these issues. While brief, I hope this has helped you better understand that landscape and also help you appreciate the steps we're taking to proactively understand and manage these important issues. Chris, I'm going to turn it back over to you to wrap up now.

Thanks, Brian. Now I'll just take a minute or 2 to summarize what my team and I have been trying to communicate with you today. And it starts with this key point. Hawthorne is unlike any company serving the needs of the cannabis space today. And more importantly, we are better positioned than anyone else to be able to meet those needs in the future as well. We have a superior operating footprint, and we benefit from a world-class technology platform that provides us the insights to improve our business and better serve our customers. Speaking of our customers, no one does what we do when it comes to customer service and technical support. Our sales process is a competitive advantage that will keep us ahead of the competition. So our commitment to R&D. We could have a lot of the entire hour this morning to Paula and the other members of the R&D team. Innovation matters in every industry. But in this industry, with change happening so fast, it is particularly important to be on the front end of that change. And as Brian has just shared, we're also out front in our understanding of the political landscape impacting this industry, and the resources we're adding to the team will help us even further. Leadership. That's what the Hawthorne brand is really all about, and I hope that you would take that away from this briefing. Really appreciate you guys listening, and I look forward to talking to you during the Q&A. Now I'll turn it over to Jim Hagedorn to talk a little bit more about the U.S. consumer business. Thanks.

Thanks, Chris. I'll also add my point of view. I like talking about building moats. And what you've heard this morning is all about building moats around the Hawthorne business and putting us in a great position for the future. I won't repeat the comments I made earlier today, but I will say this, I don't mind saying that it's hard not to be impressed with the story you just heard. I hope we filled some of the knowledge gaps that you've had coming into the day and help you understand the future potential of this business. Speaking of potential, we're going to shift gears and talk about our U.S. consumer business, and so I want to say a few words about our speakers. Josh Peoples, Mike Sutterer, Patti Ziegler and Tom Crabtree. These people are all important leaders in shaping the future of this company. We named Josh as our Chief Marketing Officer last year, and it was a recognition that was a long time coming. He's basically grown up at Scotts and has had a tremendous run of success here. He takes a thoughtful and analytical approach to everything he does and is exactly the right person to lead our marketing efforts as we navigate a pretty aggressive transformation. He works in a highly collaborative way, and I'm confident he and his team will be successful as we work to nurture our relationship with a new generation of gardeners. Part of his work means collaborating with Mike Sutterer, who is CEO of Bonnie Plants Farms. Mike was with us for nearly 20 years in a variety of roles, including leading our garden and controls business for a while. He is a great partner for us at Bonnie. This category is in his blood, and he's also one of those people who is always looking for a way to make the business better. Our 50-50 partnership with Bonnie is critical for us going forward, and I'm glad you'll get a chance to hear from him today. Afterwards, you'll hear from Patti Ziegler. She's another member of the team who is always striving to take things to a higher level. Patti has been with us for over 10 years and had an agency background before she joined us. She's been a great addition to the team and is constantly challenging us to think differently. We had been ramping up our direct-to-consumer efforts before COVID hit, and things then exploded as a result of the pandemic. Patti and her team are all over it, and I think you'll learn a lot this morning as a result of her brief. And then finally, it's spring, so we need a star walk. Tom Crabtree will share a bit about our sales processes and then virtually walk you through some of the stores in Louisiana and Tennessee. Tom is absolutely relentless in his efforts and is one of the most energetic guys you'll ever come across. He's a great fit for our culture. He came out of the supply chain and then led our Home Depot team before leading all sales. So that's the team. Let me turn it over to them.

Hey, good morning, everyone. I'm glad to have another opportunity to talk with you about the steps we're taking with the consumer to drive our business. We remain extremely confident in the long-term outlook for the lawn and garden category and the opportunity for our brands to benefit. At the core of our optimism is the changing consumer. Their expectations of brands are evolving. Purpose and transparency matter. Their consumption of media is different as well. Websites, social channels, podcasts and streaming services are go-to sources for news, entertainment and social circles. The demographics are shifting. Aging baby boomers remain a big consumer group, but a swell of millennials has entered our wheelhouse. They make up nearly 1/4 of the population and are beginning to have families and move into homeownership. Our research indicates they are more interested in lawn and garden activity than their parents and equally accepting of our brands. The population mix is changing, too. Minorities are growing and will become the majority in coming decades. They are young and approaching first-time homebuying age. Consumers have a healthy appetite for organics, both food and nonfood. Organic foods are growing at a rate of 2 to 3x that of total food sales and 40% is fruits and vegetables. Nonfood organics are growing at 2x that of organic food growth. Finally, migration patterns are spreading south and west with no sign of slowing down. All this lines up for us. Let me tell you what we have done to capitalize. It starts with innovation. Our new product strategy is driven by consumer needs while being rooted in science. Performance Organics, Triple Action and GroundClear speak to the lifestyle of the millennial consumer. We're developing more natural products that are targeted to a younger subset of the market. We're also making indoor gardening a priority as a way to drive year-round selling, while at the same time, appealing to consumers whose love of gardening transcends any one season. To address the migration shift that I mentioned earlier, you will see us creating products tailored to the needs of the south and west, such as Ortho insect control. And we're leveraging Bonnie Plants to take live goods to the next level. Nutrient soils and plants are intrinsically linked. I'm going to turn it over to Mike Sutterer for few a minutes so he can give you a better sense of the power of our Bonnie partnership.

Hello, I'm Mike Sutterer, President and CEO of Bonnie Plants. There's never been a more exciting time to be in the live goods category and to be at Bonnie Plants. As you know, I spent a good part of my career at Scotts Miracle-Gro, leading the gardens and live goods team. So I bring a unique perspective to the partnership between Bonnie and Scotts Miracle-Gro, which I believe is a win for both companies as well as gardeners and our retail partners. Live goods is a $6-plus billion category that offers meaningful long-term growth. This is true not just in our core of edible gardening, but in other areas of live goods, too, like succulents, flowers and genetics. The flower category alone is 4x larger than vegetables and herbs. And succulents and indoor house plants are millennial-friendly. By cross-merchandising and promoting our live goods with Scotts Miracle-Gro products, we provide consumers with simple solutions to be successful growers. Josh talked about the increase in category participation in 2020 and the intent of gardeners to engage again. In fact, their positive experiences have them planning to grow more plants this season. These new growers are younger, more male, have kids, have higher incomes than the traditional gardeners of the past. In short, they are a great customer for us and will provide years of growth potential for Bonnie. We're seeing signs of these trends in our own data with no letup in demand and sales nearly doubling through the fall 2020 versus the previous year. Bonnie has a huge competitive advantage to capitalize on all the opportunities that lie ahead. We are the only U.S. grower with scale and a national footprint. Retail partners see our reliability where other growers fail. This was evident last year when we responded to demand without the kind of widespread out-of-stocks that others had. We were able to deliver because we operate 87 facilities in 42 states with over 15 million square feet of greenhouse space. This puts us close to our retail partners and consumers, enabling us to have fresher plants and reduce lead times. And our fleet of over 800 trucks with sales representatives gets plants to over 20,000 retail stores every year. We've also built an e-commerce fulfillment network that allows us to deliver fresh plants anywhere in the U.S. in 2 days or less. And we're making our network even better by investing in analytics, automation and technology. I mentioned earlier how we can win in other segments. Our research and development team trials hundreds of new varieties to screen for success in home garden and patio environments. And we're locking up exclusive rights to genetics and varieties in popular segments, including super hot peppers. While vegetable and herb plants have been the core of our 103-year history, we took steps last year to move into other types of plants as well. Here are some examples of 2020 launches that are the foundation for further growth. One, Bonnie Harvest Select and Bonnie Foodie Fresh, which are premium genetic lines that command higher price and better margins. Two, Miracle-Gro Brilliant Blooms, a premium-priced flower program with superior genetics and built-in plant food to ensure gardener success. This was our most successful new product launch ever and won Lowe's Lawn and Garden Innovation of the Year Award. Three, house plants fulfillment for Scotts Miracle-Gro Green Digs brand. In 2021, we're building on these successes. A new Bonnie Colorful Companion Flower Program will pair flowers with vegetable and herb plants to attract beneficial insects while helping to naturally resist pests and disease. After a successful pilot test, we are launching a national Bonnie succulent line in over 1,600 Tractor Supply stores, and we'll have them online through bonnieplants.com and other retailers. We plan to expand in-store and online sales in 2022 and beyond. I hope you can tell how excited I am to be on the Bonnie team and how committed I am to making the Scotts Miracle-Gro partnership as strong as it can be. We have a powerful combination that benefits our stakeholders and increases our ability to continue unlocking the potential in live goods. Thank you.

Thanks, Mike. I want to spend the rest of my time talking about the consumer, why we believe they will continue to be engaged in our category and how we are connecting with them on multiple levels, bringing us into their world instead of the other way around. Marketing is the area where we've made the biggest groundbreaking shift. Our game-changing marketing approach places the consumer at the center of all we do. As a result, we're more dynamic, agile, targeted and impactful with our marketing and media. We're more data-driven to become smarter with how and where we connect with people. This actually was our path when COVID hit. COVID made more apparent than ever the power of consumers. They told us what they want to buy, when they want to buy, where they want to buy and how they want to buy. COVID became a catalyst for accelerating our marketing evolution by 2 to 3 years. Here's how it came to life. We amplified efforts to reach consumers in the many places they go for information. We went all in on audience-based messaging and media tactics that were culturally relevant. We tapped into digital channels like never before, and we spoke to them differently. It was all about knowing what consumers are feeling and what's going on around us. This was something that was not part of the plan pre COVID. Here's an example of what I'm talking about, the Our House campaign. [Presentation]

Whether you are new to gardening, a work-from-home parent looking for something to do with your kids or wanting to order your favorite Scotts Miracle-Gro products, we were there with you as a trusted friend and adviser. The results of this approach speak for themselves. More than 20 million people entered our category. Here's what we're seeing now to make us even more bullish than ever. Of those 20 million people new to our category, 86% plan to stay in 2021. Our research shows the majority intend to spend even more. When asked about the relative importance of various spending, consumers say they will prioritize gardening products over eating out, their coffee run in the morning and alcohol if money gets tight. Among new edible growers, 72% say they will plant more vegetables and herbs, boding well for live goods in our garden products. Among the new lawn care consumers, 71% intend to do more lawn care. How are we responding? We did not let up in the late fall or winter months as in previous years. We are talking to consumers not just 12 weeks during the spring, but rather all 12 months to be top of mind and make gardening a long-term habit, especially since so many new lapsed consumers wanted to do more if they only know what and when to do it. Gardening is not just a warm weather passion. It is a part of the home. It's a form of self-expression that is deeply personal. We've infused an inviting tone that is entertaining and is grounded in the belief that gardening makes life better. We're also tapping into celebrities. By allowing them to share their experiences, influencers enable us to establish deeper bonds with consumers. This was the strategy behind our first-ever Super Bowl commercial and the Keep Growing campaign that continued until the first day of spring. [Presentation]

To reach consumers where they are active and engaged, we continue to expand the touch points. These include social channels like TikTok, streaming platforms such as Discovery Plus, Roku and Hulu and even text messaging with tips and offers. Weather analytics enable us to optimize promotions down to the local level with speed and precision. If we see good weather in the Midwest, we drive messages and product ideas into just about every media channel in a particular community. And we are putting increased investment behind what is working. In 2021, upwards of 75% of our advertising will be spent on digital, allowing us to be more targeted and diversify our creative to represent different audiences and their values. I firmly believe that our marketing and innovation approaches are more powerful now than at any time since I joined the company, and that was 20 years ago. Hopefully, this overview provides some clarity as to how we're capitalizing on the opportunities that lie ahead. Thank you for your interest. I'll now turn it over to our Chief Digital Officer, Patti Ziegler, to talk about our e-commerce growth and strategies.

Hello, and thanks for taking the time to learn more about what my team and I are doing to drive our e-commerce business. And I'm happy to say this is the fastest-growing area of the company. Lawn and garden, like most other categories saw consumers change the way they shop last year. E-commerce sales, whether through our channels or those of our retail partners, grew by 184% last year. And the experience was so positive for consumers that it's hard to imagine they won't do it again this season. Fortunately, we've been making smart investments for the last several years to advance our e-commerce and direct-to-consumer strategies. And so when things took off last year, we were ready. But I'm convinced we've only scratched the surface. I'm going to share with you our strategy as it relates to working with our retailers on their direct-to-consumer efforts, the development of our own channels and the creation of our own brands that are designed for e-commerce. That last point, the development of our own brands, is the backdrop for this discussion with you today. Welcome to Greendigs, our first living design content studio and consumer experience. On its space, Greendigs is a storefront that we opened earlier this year in Columbus, but it's more than that. It's also an online community where people can shop for indoor plants, can get tips to make them more successful growers and connect with us on a very personal level. The Greendigs storefront is a real-world manifestation of the Green big e-commerce and online store. The studio reflects our team's ambitions to get closer to our consumer and through content creation in real-world interactions to deepen our relationship with them. Here, we can interact with consumers and their plants, let them experience indoor gardening and the benefits it brings, whether your plants are for home decor or for growing food, a hobby or something more. We know gardening is deeply personal to people, and Greendigs lets them explore it, providing them with information, educational expertise and our products any way they want to shop in real life here and online. But we're doing much more than this. So let me take a step back and explain what our e-commerce team is doing to drive our business in 2 important areas. First, we are laser-focused on supporting our partners and their e-commerce efforts. We work hand in hand with our retailers to help drive product interest, sales and fulfillment through their own online platforms. Second, we serve as an innovation and brand development team, ensuring all our partners have the product assortment, content and innovation they need to drive online sales. Let's start with product availability and assortment. Last year, we worked with our retailers to ensure the essential lawn and garden products were delivered to consumers. Supporting our omnichannel retailers was a critical building block of our and their success. Buy Online, Pick Up in Store and direct delivery to home were an important part of last year's success. We demonstrated then and now e-commerce and connected retail experiences drive our year-round performance. E-commerce sales driven through retail grew 320% last year, a combination of BOPUS, retail direct-to-consumer fulfillment and our own direct fulfillment on our retail partners' behalf. As I said earlier, consumers had a great experience last year, and we expect that will increase BOPUS sales again in 2021. Here's why. Our research tells us that about half of consumers are still nervous about shopping in a physical store. We know that 22% of lawn and garden households were BOPUS consumers last year. And 90% of consumers were extremely are very satisfied with the experience. So we're planning for our omnichannel retailers to have a great BOPUS system. You can expect us to continue to support our retailers, keeping our products available through this increasingly important consumer delivery channel. A critical part of our e-commerce success is directly tied to our supply chain, which has become exceptional at shipping individual parcels. Our proficiency was honed during the early stages of the pandemic. In the initial weeks of 2020 spring order surge, we went from 6 operational DTC locations to 13, helping our customers meet consumer expectations for handling and delivery time by reducing the distance to ship our products. These facilities not only support key retailers, but also support our online-only customers. Scotts Miracle-Gro and Hawthorne Garden & Company online-only customer business grew in 2020 172% and 44%, respectively. Our partnership with our online customers allowed us to succeed in several ways. We expanded our product offering, created easier ways for our consumers to shop, highlighted essential products for beginners, bundled products to improve results and promoted the love of backyards, gardening and indoor growing. The best news is the consumer stayed with us all year long. Selling 365 is something we do online too. Year-round online product availability, matched with the ability to reach engaged consumers through online channels is driving this growth. You've already heard about how we have made a shift in our marketing approaches, focusing on digital, coupled with compelling content strategies. This approach has also created the opportunity to build new brands with more narrowly targeted consumer audiences. In 2017, we launched our first digitally native brand Lunarly, a curated collection of plants, candles and wellness products as a subscription box. Since then, we've launched Backyard, a line of lawn care products targeted to pet owners, a front door live goods subscription service, as well as Greendigs. This year, we're launching a brand called Instead. It's a line of all-natural lawn care products delivered as a customized subscription to your home. It's an alternate approach to lawn care for those consumers who want to loan differently. Instead launched this March with lifestyle advertising that features Drew Barrymore, who beyond her role as brand advocate has joined Instead as Co-creative Director. We expect this brand will find its audience and grow to become an anchor brand of our natural and organic portfolio. These audience-focused online brands introduced lawn and garden with a twist. Each fits the sensibility of its target consumer and engages them in a new way. The marketing approach for these brands follow suit, engaging consumers with our brands and more importantly, with each other in the branded communities on social media. The birth of these digitally native brands brings to life innovation across our business, too. Our e-commerce and R&D teams worked with Bonnie Plants to set up 4 live goods growing and D2C enabled shipping facilities for and Greendigs. We've worked with our R&D partners to create a new way to ship plants with less mass and not having to make any compromises on quality and beauty of their live goods. This results in a better consumer experience and lower transportation costs for us, too. I'd be remiss if I did not highlight AeroGarden Scotts Miracle-Gro now owns 100% of AeroGarden, adding an already strong brand to our direct-to-consumer portfolio. Beginning in fiscal '21, AeroGarden is part of the e-commerce team after being a part of Hawthorne. This unique product line of countertop kitchen gardens is on trend and is seeing strong growth in all channels, direct-to-consumer, online retailers and at retail. The direct channel recently saw the most significant growth, greater than 200%, and online and retail grew greater than 95%. We are especially excited with AeroGarden because of a strong connection to growing food. Consumer interest in restaurant-style cooking at home, even if it's adding fresh herbs to a store-bought pizza is on the rise. Many consumers also remain concerned about how their food has grown. The easy-to-use AeroGarden hydroponic garden is the perfect fit for these and other foodie trends. As we look ahead for this brand, we are sourcing more unique varieties, and we'll be developing more systems for seed starting subscriptions as well as decor solutions with flowering plants for home offices. As you can see, our e-commerce strategy is meeting consumer needs at retail, online and with innovation. We are continuing to build for the future lawn and garden consumers while serving today's consumers with better products and more efficient and personalized solutions for their individual tastes. Across our e-commerce businesses, we work to get closer to our consumers, just like we do at Greendigs. Think of it as not just selling products. We're building more joyful connections to create a total experience in the lives of our consumers that is not tied to any season, but is rather year round. With this blend of online and off-line world, everyone wins, especially the consumer. I'm thrilled to have the opportunity to lead this effort and to be supported by a team of incredible, creative people. I see e-commerce as absolutely essential to the future of lawn and garden category and Scotts Miracle-Gro. Thanks for taking the time to hear our story. Let me shift the discussion to Tom Crabtree, our Head of North America Sales, for insights into what's happening with our retailers.

Hello, everyone. Our sales team is really excited about the retailer engagement that, quite frankly, hasn't slowed down since last spring season. As the largest vendor in lawn and garden for all of our retail partners, we've been focused on 3 key areas: first, selling 365. As Scotts Miracle-Gro, we no longer talk about a 12-week season. We talk about 12 months, whether it's online or in-store. We've got solutions for consumers no matter where they are or what time of year it is. Winning locally in our space, every store matters and every home space is a little bit different. To win locally, data matters. We've got weather analytics that enable localized media blitz for the right products at precisely the right time. Lastly, we're omni-focused. We work with our retailers to be everywhere the consumer journey begins, online and research, BOPUS pickups, curbside or at garden corals and even local delivery. So let me talk specifically about our Scotts sales team or what I like to refer to as the Scotts sales Army. We love to compete. We love to do battle. We win. Let me break down this army for you to give you some perspective on the scale and capabilities we've built. At a high level, our customer base consists of over 20,000 individual retail locations with nearly 2.5 million individual points of distribution or store SKU combinations. Big 3 sales penetration is still massive. But this is lower over the past couple of years as we've seen shopper trends and behaviors favor some smaller footprint retailers, including farm and fleet and hardware, as well as one-stop shoppers at club. And also, don't forget the online channels. So I'll break our sales team down into 2 core areas for you. We've got account sales and in-store sales and service. Account teams focus on strategic selling with all of our corporate merchant partners building relationships from bottom to top, with not only the corporate merchant teams, but also supply chain teams, marketing teams and integrated omni teams. The account team's focus on partnering across functions to build load plans, replenishment plans and forecasts, but also partner on assortment, merchandising space plans, category management, promotional and co-op marketing and media activations. These teams are responsible for in-season execution and adjustments to plan, but longer term, multiyear strategic growth plans as well. Now the field sales and service army, well, they're our boots on the ground. These folks are where the rubber hits the road. They're in retail stores each and every day across the country. The Scotts Miracle-Gro sales army consists of nearly 2,200 full and part-time associates at peak season. And nobody gets more local here. We're aligning on strategic local sales programs, making inventory recommendations, educating store associates, helping consumers, down stocking inventory coordinating freight 24/7 with our plants and store operators. These troops are critical in our effort to be as locally relevant as we can be. Like I said, every store matters and every store has a different consumer. As good as we are at the corporate merchant level, you'd say we get it 75% to 80% right. It's our boots on the ground in every store that find that last mile in the assortment. They get that last 20% to 25% right, which is what makes that store your store. They have key relationships with regional, district and store managers, to mention just a few. They are the Scotts advantage. They're armed with data and analytics that include POS by store, category and SKU data as well as inventory and comp data at their fingertips to make sure that we're fact-based and we don't miss a single sales opportunity. These local and regional programs account for millions of dollars of incremental POS annually that otherwise would not be realized through corporate plans alone. Our sales teams reach over 9,000 store locations, primarily in the home center and hardware channels. We pride ourselves on growing store locations to the prestigious $1 million level of POS annually, and we grow this store list every year. Not only do we have great relationships from top to bottom with our key retailers and key store decision makers, but we have great partnerships as well, starting with Bonnie Plants. This partnership with Bonnie means we add another 700 folks to our total army in the stores. Both teams have each other's back, and it's a great second set of eyes when the season is exploding to ensure cross-merchandising, point of purchase, inventory, space and live goods product quality are being executed flawlessly. So enough of me talking a good game. Let's get out in the field together and see how we're shaping up as the season starts to break. We'll hit 2 key markets today, 1 in the south and 1 in the north. So let's go. [Presentation]

As you can see, no one has the presence we do in the retail stores. No one. I invite you to check it out yourself. Thanks for your time. I'll send it back over to Jim for our next segment.

It's great to see the stores rocking again in lawn and garden in full swing. Watching Tom out in the field has inspired me to get on a plane and start doing some of the field visits myself. I said earlier this morning that I believed our people are our biggest competitive advantage, and I hope you now see why. The venture is pretty strong and keeps getting stronger. I mentioned earlier that we have been working with outside experts to help us assess and develop what we believe to be the leadership team of tomorrow. Many of the people you heard from today are part of that process, but there are others too. And as I said earlier, I think it's worth your time to get to know who they are. So we're going to introduce them to you here. Nothing fancy. We've just asked them to pick up their iPhone and introduce themselves. Here they are.

I'm Mark Slavens, the Vice President of R&D at The Scotts Company. I have a PhD in horticulture biology from Cornell University, and I've been with the company for 11 years.

Hi. My name is Sarah Gordon, and I'm the Vice President of Marketing for our gardens business unit, which includes growing media, plant care and live goods. I've been with The Scotts Miracle-Gro Company for 18 years, and I've had the privilege of stewarding many of our brands. I'm also a proud member of the Scotts Women's Network, and I'm passionate about our Gro More Good initiatives.

Hello, I'm Ashley Bachmann. I've been at Scotts for almost 12 years now. I've been in a variety of positions across marketing and sales, and I am currently the Vice President of lawns and private label marketing.

Hi. Matt Taylor. I lead our e-commerce sales marketing team. Prior to joining the e-com team, I spent almost a decade managing our brands here at Scotts. And I have also worked at smaller digital native companies in operations, sales and marketing.

Hello, everyone. Josh Meihls here, Vice President of Sales Strategy and Operations. I've been with Scotts for over 17 years. My family has been from Northwest Ohio to Marysville to North Carolina and back to Marysville. It's been a great ride, and I'm looking forward to it continuing.

I'm Laura Allen Dillard, a Product Development Manager in R&D. I came to Scotts after earning my PhD in chemistry from Yale University and have spent the majority of the past 7 years supporting the Ortho and Tomcat businesses. Currently, I lead new product innovation for Hawthorne nutrients and pesticides.

Hi, I'm Paul Wilczewski, Director of Manufacturing at the Marysville. I've been making lawns green and beautiful for just over a year. Prior to joining Scotts, I worked in global operations at a consumer product ingredients company.

Hi, my name is Alex Grossi, VP of Customer Service for Hawthorne Gardening. I've been with Hawthorne for 2 years now, with 10 years in the indoor gardening and hydroponics industry. The majority of that time I spent with Sunlight Supply on their sales team.

I'm Molly Jennings, Director of Corporate Affairs and a 10-year veteran of ScottsMiracle-Gro. Before Scotts, I lobbied on behalf of various interests, both public and private. In fact, my very first job here at Scotts was in state government relations. Today, I lead a team of talented corporate communicators with a focus on social impact.

Hi. I'm Mike Davitt, VP of Sales for our home depot business development team here at Scotts. I've been with Scotts now for 10 years working in multiple roles, including field sales as well as brand marketing. I started my career at Accenture as a management consultant, and I also have CPG experience working for MillerCoors.

Hi, I'm Julie DeMuesy. I'm the Vice President of Human Resources for North America and Talent Acquisition. I've been at Scotts for a total of 11 years. I've held similar HR strategic roles at great organizations, like Abbott Laboratories, Elmer's Products and Huntington National Bank.

Hi. I'm Kelly Berry, VP of Finance for the North America Consumer Business. I've been with Scotts for about 13 years, and I've had various roles during that time, including most recently as Corporate Treasurer. Prior to Scotts, I started my career in public accounting. One of my favorite roles at Scotts was supporting the fertilizer business, where I learned that the best time to fertilize your lawn in the spring is when the yellow forsythia bushes bloom.

Hi. I'm Joanna Mefford, the Director of Sales Finance at Scotts. I've been here for 12 years and hold a master's degree in accounting and a CPA. What I love about Scotts is my various roles supporting operations has taught me to be a business partner, not a bean counter.

Hello. I'm Mark Scheiwer, and I'm the Finance Lead and Vice President at Hawthorne. I spent 9-plus years working at Scotts and now Hawthorne. In my prior role, I was also the Corporate Controller. Previous to the company, I spent 14-plus years working as an auditor at Ernst & Young in the public accounting field, where I audited private and public companies, like Cardinal Health. Thank you.

Hello. My name is Kurt Milburn, and I'm Vice President of Sales for National Accounts. I've been with Scotts for 10 years in a number of different roles, primarily in supply chain and operations. Prior to joining Scotts, I worked for General Motors and General Electric in various engineering and operations roles. Certainly thrilled to be a part of The Scotts Miracle-Gro team, extremely excited about where we're headed in our future. Thank you so much for your time, and I wish you all the best.

Hi. My name is Amy Michtich. I'm the Vice President of Growing Media operations, where I support the production and direct to store delivery of soils and mulch across the U.S. and Canada. Prior to joining Scotts in 2019, I served as a Chief Supply Chain Officer for a multinational beer manufacturer.

Hi. My name is Kristin Dean. I am the Vice President in Human Resources. I'm currently the HR Business Partner for all of our corporate groups. I also lead the engagement efforts for the organization. I'm in my 22nd year at Scotts.

Hi. My name is Dimiter Todorov. I'm the Vice President of Legal. I have been with the company for about 13 years in various roles. I was the head M&A lawyer, the head international lawyer and the head commercial lawyer, currently on lawn to Hawthorne in a business development role.

Hi. My name is Katy Wiles. I'm Vice President of Legal. I've been at Scotts for about 8 years. In my current role, I lead the legal team at Hawthorne. And I lead, from a legal perspective, M&A transactions at both Hawthorne and at Scotts.

Hi, everyone. I'm Adam McCuiston, Vice President of Category and Marketing at Hawthorne. I've been with the Hawthorne side of the business for about 3 years since the Sunlight Supply acquisition. Prior to that, it's been about 8 years on the SMG side of the business. Before coming to SMG, I was in the banking industry with a background in finance and strategy. Thanks so much.

Hi. This is Adam Sharp. I'm VP of Supply Chain for Hawthorne. I've been in the hydroponic industry for about 20 years and with Hawthorne for about 5. Prior to Hawthorne, I was part of one of the acquired companies, Botanicare.

Hi. My name is Jodi Lee. I'm a VP in Marketing, and I've been with Scotts for a little over 7 years. I currently run our controls business. Before I came to Scotts, I worked at Nationwide Insurance on their property and casualty side. And I got to lead a number of affinity marketing initiatives to help them grow.

I'm Mike Totzke, VP of Sales. I've been with SMG for 15 years in a number of different sales roles. Today, I'm living my dream job, leading business development for Hawthorne.

I've become so used to seeing people on screens, I really can't wait until this building starts humming again, and I can actually get back to seeing people face to face. Let me close things out here and then turn it over to Jim King. We've got a lot going on at this company right now, and we have a lot of reasons to feel optimistic about the business. We've got to get through this year and see whether consumer behavior changes a lot as the world gets back to normal. But gardening has historically been one of those activities that sticks with people. The demographics are with us in the consumer business. That's for sure. And I believe the briefings from Josh and Patti in particular should give you a lot of confidence in our ability to build a long-standing relationship with all of these consumers. We are in a different place here regarding the consumer business than we were when we introduced Project Focus. I hope you walk away from this morning understanding why that's true. And as it relates to Hawthorne, we're just getting started. We do have a better business than anyone in this space, and that should be evident by what you've heard today. We also have the financial capacity and the willingness to use it to further strengthen the portfolio and explore other ways to get closer to the grower and the end user of cannabis products if the federal law makes it easier to do so. We're doing all of this while maintaining a healthy balance sheet and the financial flexibility to continue returning cash to shareholders. I'm extremely confident what the future holds for ScottsMiracle-Gro. And after spending time with us, I hope you are, too. Jim, why don't you take over so we can move on to the Q&A?

Thanks, Jim. Okay, we're going to take about a 10-minute break here before we start the live Q&A. You'll see a countdown clock on the screen that will lead up to that session. [Operator Instructions] If you're not part of the live Q&A, just stay on the screen. We'll show you some commercials and a few short videos for about the next 10 minutes. So we'll see you then. Thanks. [Break]

Okay. Welcome back everybody. We assembled here with most of the management team that you just heard from to go through a live Q&A session with our sell-side analysts, as I mentioned earlier this morning. I've got a handful of questions that I'm going to pose as well from shareholders or buy-side analysts who sent me questions over the course of the morning. Ground rules are going to be fairly simple here. Try to keep everybody's questions to 1 or 2, and then we'll try to be as brief as possible in our remarks. We're trying to target a 1:00 close, as close as we can get to that. Our goal is to not talk too much more this morning elaborating on the guidance that we provided. Given the context of the -- or the content of the meeting this morning, we prefer most of the questions to be more kind of strategic and longer term in nature. That said, as you heard from Cory this morning, we updated sales and EPS guidance. But we wanted to get through -- he recorded his comments about a week ago. We wanted to get through the fiscal month, which we just closed a few days ago, and give you guys more of a real-time update on where we stand from a POS perspective and a retail inventory perspective as we go into April. As you guys know, historically April and May are the 2 largest months of the year, so it's a pretty critical inflection point for the business right now. So Cory, before we jump into everybody else's Q&A, if you want to just give folks an update on that, that would be great.

Sure. Hello, everyone. Thank you, Jim. I just want to point out that we did close our second quarter on Saturday. Shipments remained at or above our plans in both segments. Year-to-date POS in our U.S. consumer segment was plus 20% versus prior year. And our retail inventory at our largest retailers is also at plus 20% versus this time period last year as well. So hope that covers kind of where we're at today. And as questions come up, we'll expand if needed.

Mike, anything you want to add before we jump into the Q&A?

I was on mute, but no, I think all retailers are engaged. And actually today, they're starting their SpringFest or Spring Black Friday. So I just saw a video of a line of 50 or 60 people. Actually, there's a fight in New York store over the last pilot of garden soil, so it's being discounted. So the season is strong. So good news on that front.

Mike, you might just add, the month we're in is not a particularly challenging month for us, because it was kind of when COVID was the most screwed up for us and nobody knew what to do. So April should be a number where we build on our sort of performance, don't you think?

Yes. I think April will -- well, there was no promotion at all. Retailers were shutting stores down. They weren't sure what they could sell. So -- and so it was a bit of a struggle in April. So I think we came out of April last year plus 2% for the year, so things then really took off. So we're expecting with that low comp that April and all indications are it's already started, it's going to be [indiscernible]. So it doesn't tell you what the whole year looks like. I'm trying to control myself how excited I'm, but so I always have to be conditioned here, but I think it's going to be really good.

Right, we'll go ahead and get started.

All right. You're frozen, dude. [Technical Difficulty]

Yes. So who's up first?

Jon.

I'll go first. This is Jon Andersen. First, I'd just say thanks for hosting this event. I thought the content breadth and depth was excellent. And I for one felt like I traveled the country this morning from the comfort of my home office. So you took advantage of all the -- you made the most of the virtual format, I think, so kudos to you. My first question is on Hawthorne. How do you see the future of the hydroponics market evolving? And I'm thinking here as more as it relates to the size and concentration of your customers, more large commercial growers probably more prominent as we move forward. And then again, how are you positioned to serve those large commercial growers today? What needs to change to kind of take yourself to the next level? And why do you think you have an advantage over some of your competitors in doing so?

All right, Jon. Yes. So obviously...

We're not muted.

No, I don't think we are. So yes clearly, we see I think consolidation taking place, both at the cultivator and the retail side. So I think it will be more larger customers, both in terms of end cultivators. And we'll see retail consolidation like we've seen for the past couple of years, with a few notable publicly traded examples that I'm sure you guys are aware, that I think many of you cover. As far as our ability to or desire to sell direct to large cultivators, once we have sort of the banking and treasury support to do so, look, it's something we intend to do in a lot of cases. That being said, we haven't really designed our supply chain at this point to do kind of last mile to all cultivators. So there's always going to be a role for the retailer I see in serving our end consumers. But we're -- Dan talked a lot about this, I spoke about it. We're putting a lot of money into our supply chain right now. We're putting another 1 million square feet of distribution space into the country this coming year. So we are going to have a much better ability than anyone at sort of the manufacturing and distribution side to get to those end consumers. But like I said, we still think a lot of our business will go through retail sort of for the foreseeable future.

But that's been a big question for us that's been sort of -- we've struggled with answering it, I think, for the last couple of years. We've got a great relationship with some of our large retail partners and our small ones, and we want to keep it that way. So I think it's a little bit like on the consumer side. Everybody is getting nervous as hell when you talk about direct sales to consumers. I think there's less struggle over that, and everybody has sort of come to their place. And I think that within your business, Chris, I don't know if you look at California. I think it's still a very diverse market with a lot of smaller growers, which I think you'd call legacy. You were using that illicit word before.

Yes, legacy, duty free.

But I think that people listen carefully to this call, and I don't want them to look -- view it as fighting words. I think we're -- we -- Sunlight was an important part of our ability to sort of service the market, and we'll just sort of see how it goes. But I think we've been doing well on both sides.

One follow-up over on the U.S. consumer business. 2020 obviously was quite a unique year. Having acquired so many new and previously lapsed consumers, can you discuss what you see as the top 2 or 3 actions that you're taking to try and manage the retention of those customers? I'm thinking is it higher absolute marketing spending? Is it different types of media, better data analytics? But a little bit of discussion around that and some concrete actions to retain those consumers. And then a follow-up or kind of a part B, there wasn't as much trade promotion in 2020 for obvious reasons. And I'm curious to know if you think the relative importance of traditional consumer advertising versus trade promotion has changed as a result of what happened last year and the results that frankly, the industry got without the same degree of trade promotion. So there's a lot there, but I appreciate it.

Yes, there is. I'm going to probably hand it over to Mike and Josh to sort of handle this. But this is a lot of what we're about right now in addition to Hawthorne. So yesterday, I sort of threw my group for a loop, and I said I want to do more. I want -- but we've been thinking about this since as the sort of lawn and garden season started to down trend, I mean naturally as a result of weather last year, about what do we do to keep these people in. And Josh and I were talking, and he uses an example of that I used a lot or have used a lot in the past, which is we're throwing so much ammo through the gun right now, the barrel is red hot right now. And so we're -- Mike uses the word unconstrained. I think some people have looked at the Super Bowl where we began that and said, "You guys are just getting too big for your britches." That's always the bad sign when people go on the Super Bowl. No, we -- for what we're trying to do right now, get people early, the Super Bowl is an extremely efficient way for us to sort of get people and keep them. But -- so I'll let Josh talk about that. I think in regard to sort of promotion at the street level, I think there's going to be a lot more activity, especially this month with retailers who were doing nothing last year. It was not a joke in -- and it was kind of the environment I really like a lot where there's like no rules. Last year everybody just was afraid. Nobody knew what essential was. We had a couple of states, Michigan and Vermont, come out pretty early and say gardening is not essential. That lasted a couple of weeks until consumers gave them back and said, "No, it is essential, and we want to do it," and they backtracked on that pretty quick. But you didn't see any sort of Black Friday events right there. That resulted in a pretty significant increase of margin at the retail side because they contribute a lot toward that as did we. We took that money, and we also talked to our retailers and said we want like a lot of the money we jointly were going to spend. We want that back, and we'll invest it ourselves since you guys haven't -- they're not -- they weren't that comfortable yet, with sort of stimulating the market. And I think we really liked what we could do. And Josh said it in his prepared remarks was that it probably accelerated us, I'm going to say, I don't know what Mike's view is, but I'd say 3 to 5 years on what we would have done with sort of alternative marketing. And as we've gone through the year, I think we've talked a lot about this in the last few days as we're trying to figure out what percent of sort of heavy promotion that I'm not a hugest fan of, at least in a lot of categories. I think mulch probably works pretty well, and it's a good way to lead into the season. But I think we're looking, Jon, at probably 50% of kind of the level of retail promotion, at least Black Friday-type, like loss-leading promotion that happened. And I think that's a pretty reasonable answer for us is these retailers -- a lot of the retailers that gained a lot of share, particularly early last year, was hardware co-ops, wholesale clubs, farm and fleet. These are folks that, like, did fantastic and got real entrepreneurial. It took a while for the bigger high-profile footprints to feel comfortable that they could do that. I think they're going to make up for it in April. But I think the number we're looking at is about 50%. Mike, do you want to sort of pick up just on kind of what you're feeling at the retail promotion level?

Yes, I think it's great -- so we had great learning last year that advertising really worked. So we're building off of that. So -- and Josh can talk about how that continues. But the balance this year is -- it is not as -- when Jim said pile more on, in the old days I would say I'm going to go promote something and drop the price and offer promotional dollars. Today, that's more about taking advertising and using advertising to say, move it off the shelf, call to action in these territories and drive what specific products need to be there versus discounting it. And I think that's more what's happening with the retailers is to balance that. So you're still going to have promotion, more promotion than last year. But I think you're going to see it balance with marketing. And we have joint marketing efforts with the retailers that we've never had before. So I'll let Josh talk about that because he's meeting with them. We're doing partnerships. We're actually meeting with the marketing people of these retailers like never before. So it used to be just merchant driven. So Josh?

Yes, I mean I think just to build on what these guys are saying, what we learned last year was we can motivate and activate beyond just promotions and discounting. And I think that's where you're going to see just a lot more of a balance this year. So not only are we leaning in, I would say year-to-date we're probably about 2x our spend than what we -- where we have been previously. These guys just alluded to the engagement we have on the retailer side is incredible across the board. It's just not a Home Depot, Lowes thing either. You can go down through, call it our top 8 to 10 customers where lawn and garden is a meaningful category and a way into all other projects that everybody is taking advantage of. And that's just not a matter of giving away product. It's again being very relevant and meeting the consumer we're they're at. And I think that's a lot, Jon, to go into like what we're doing of how we talk to them, the mediums that we're on and being very targeted and specific is something that we've untapped here over the last, call it 18 to 24 months that we're continuing to do right now. And it's also -- the last thing is like not just being a spring business; talking to them throughout the winter, being relevant around projects they can do. And then obviously I view the Super Bowl not as a frivolous spend, but as a super-efficient and effective way to not just reach the 21 million people that joined our movement this past year, but it's a way to kind of reach and get others to feel what gardening is all about and to touch on all the reasons that they joined. And I think we did it in a really kind of fun, inviting way to keep the things moving here into the spring as well.

Josh, I just want to throw in a pitch for Gary Vaynerchuk and VaynerMedia how important they were to sort of helping us -- and this started before COVID, but really helping us -- for the first time, really understand the use of social media and very custom and targeted sort of communications with almost individual consumers. Do you want to just touch a little bit on sort of what -- how they helped us change?

For sure. They were definitely a catalyst. And I rattle off like my 3 principles here of being creative-led, data-driven and always on. And I think the piece that they bring to that is also being very culturally relevant as well in understanding specific audiences and then the way that you reach them in different ways. And again, I view between them and now what happened with COVID did advance us multiple years in where we were headed. But they definitely play a very key role obviously with everything that we're doing. And they were a huge catalyst with our marketing approach and everything that we're doing right now.

All right. I'm back. Hopefully, I don't freeze up again. Again, when the moderator losses his technology connection, it's bad. We're going to move on. Bill Chappell, Bill from Truist Securities.

Thanks again for the presentation. I thought I was extremely helpful. I guess first question would be on M&A, just surprised a little bit on both sides, but particularly on the consumer. Can you maybe give us -- you haven't talked about M&A for the U.S. consumer business in a long period of time. You probably looked at every possible deal out there over the past 10 years and passed, with the exception of Bonnie. And in the presentation, Bonnie already covers 42 states. So I'm just trying to understand where on the consumer side there would be a whole lot of M&A opportunity, which sounds fairly near term? And then on the Hawthorne side, same question. I mean it seems like you've built a pretty broad solution. You're filling out the holes with some of the R&D center and the other areas. So why is there a need for -- to reengage in the M&A market there as well?

Thanks, Bill. I'll start with live goods. That's pretty much the focus on the consumer side. So it's just building out the live goods footprint. We like it a lot. Mike has been a gigantor advocate. And our partners at Alabama Farmers Coop, who co-own Bonnie with us, are also enthusiastic in the live goods space -- value, I call it value-added live goods space. So we think there's opportunity there. Hawthorne, it's a bit of tale of two cities, I'd say, which is -- I think there are -- Chris mentioned, I think, calling project -- or product apps. The modern Hawthorne as it is today really started with what we would call warlord meeting that -- and most of them were not our warlords. They were just industry warlords, where Chris and a couple of folks on his side got together with a lot of industry-leading people and talked about what does it take to build kind of the perfect Hawthorne. A lot of those businesses ended up being part of the Hawthorne portfolio, but it started with defining what were the sort of core business pillars we wanted to participate in. And there were a few that we were not participants in. So I call in sort of the words that we have used with you guys a lot. I would call within the Hawthorne business adjacencies, there's a couple of adjacencies. I don't think -- they're not eye watering, so I don't think any -- they're not frightening. And then I think we've talked about looking farther ahead, Bill, at how we could participate in more sort of consumer consumable side of that industry over time. And I think looking a little bit like other people have maybe a constellation of how we can sort of start putting markers down in that space, so that if the laws do change, we're in a position that allows us to sort of execute on options. That's kind of -- I don't know. I don't know if I want to go much farther than that. But can you -- yes.

Yes, Bill, just building on what Jim said really as it relates to sort of core Hawthorne M&A. We built a broad solution. It's not 100% complete. There's still some key product categories that we can fill in and some really strong brands that exist in those categories that we don't control and we'd like to. And these are brands that have been kind of on our list for the past 5 or 6 years. And just -- we went through a long M&A process. We integrated all those businesses in Sunlight into each other and then subsequently into Scotts all through '18. And we're kind of back feeling pretty good about where the business is at. And I think it's also worth noting that there are much more moneyed competitors out there who are potentially chasing these brands. We kind of feel like if we want to get these brands now, it's kind of we better do it before it becomes too competitive of a situation.

And I want to put everything in sort of the context of we, I think at the moment, are not in a position where we have to sort of sacrifice any things that we said are important, which is support of the business, continued sort of shareholder-friendly actions and an M&A pipe. I think the larger size of the company, even if we're conservative, Bill, allows us to operate within the sort of targeted leverage that that we've said there. And I think Cory, you're pretty comfortable with that, yes? I mean we definitely have opportunities that far exceed our capacity. But I think our view of most of these deals is that even a deal you have a handshake on, at best has a kind of a 50% chance of closure. So I think we have a long list that we're sorting through that I think are opportunistic and exciting, but we are very cognizant of a conservative approach to our leverage.

Great. And just on that, it sounds like something you're looking at this fiscal year. You plan to be making -- doing some M&A in the coming months. Is that fair?

If you run our numbers of how we ended last year, where we think we'll be this year conservatively, I think we have opportunities that can be completed in this fiscal year, and probably additional shareholder-friendly actions that we would be completing, at least within the calendar year anyway. Cory, anything you want to add on that?

No, I'd agree. As you look at the acquisitions that are out there, each acquisition is unique and the time line around that acquisition can vary. But some we'd like to wrap up quickly, others might bleed into next fiscal year. And any action that we have, returning cash to shareholders, will kind of be right at the end of the year. So give or take a month either way.

That's great. And then second one for me. Chris, can you talk a little bit about the kind of retail landscape? I think it's very tough. I get a lot of questions from investors trying to understand because it's an unusual retail landscape, 1,500 to 2,000 commercial retailers around there that's being consolidated, that some of them have their own brands or favorite brands and what have you. Is the consolidation a risk to your business or an increased competition to your business? I know in the presentation, you went to great lengths to say you're willing to partner with anyone and everyone and not trying to step on others' toes. But how about them stepping on your toes?

Well, I mean I'll just take the beginning of it because it feels a little bit -- I was having lunch with Bernie Marcus back in the day and Pat Farrah. And Bernie's like, "Who's your biggest competitor anyway?" And I said, "You are, dude." And I think we've operated pretty well in that environment. So I'm not sure this is probably much different than who is your biggest competitor.

Yes. Look obviously, there's GrowGens out there. There's some other people that are doing, I think, pursuing similar plays in terms of retail consolidation. They're probably a year or 2 behind GrowGen. And look, they're -- they got Bob Nardelli on their sort of board of special advisers. So it's no shock that they're running kind of the depot play and it involves private label. And they've been upfront with us and I think the Street about their intentions to go, do a private label. How is our business with them? Our business with them is excellent. Their purchases with us are up. I know we see them as a strategic partner, and I believe and hope they see us the same way, and I think our business with them reflects that. Ultimately, I think as they continue to consolidate and as barriers between us and the retailer come down, I think we're going to have to have continued conversations with our retailers about what role each of us play in that environment. Look, I guess I feel somewhat more benign about it. And that is that I think as this industry matures, there'll be a maturity amongst the entire sort of supply chain and retail environment. And I think there's a lot of room for everybody there. I -- we can be a hostile company, especially when we feel threatened. I think we struggle with this one. But I do think if you look at it as a point of view of has depot been bad for us, I think the answer is definitely not. They have been a key partner in developing the lawn and garden business in this country. And I think if everybody can maintain their cool and not go to guns immediately or the mattresses immediately, I think there's an opportunity for us as -- for everybody to find their niche in a way that's very constructive. You like that?

Got it.

I get it.

Great. Thanks, Bill. Joe, we're going to go to Joe Altobello now actually from Raymond James.

So I guess my first question is on the U.S. consumer algorithm. You called it out today. I guess it was flat to up 2. Now you would be at 2% to 4% growth over the medium to the longer term. You did mention great engagement in terms of millennials as a key driver of that. Are there other drivers that's causing you to bring up that number this morning?

Yes. I think again, Mike and Josh can sort of take it, Joe, but start with we started low.

Yes.

So to be fair, we tried to build our -- and I think we've been clear about this as long as we've known each other, so it's great seeing you. The -- we generally have 3 sets of numbers we're operating with internally. One is setting Street expectations. One is setting forward expectations and -- which effectively means incentive targets. And third is Mike's numbers, which I think he has -- calls them OPs or something, operating plans. So I think Mike has his own OPs that he operates from. I think that the call up here, we kind of had no choice on in that the numbers were going to be looking increasingly ridiculous if we didn't take some action on it. So we sort of did what we had to. So I wouldn't say we're kind of trying to trick anybody, but we just -- we couldn't defend the numbers, and that caused us to have to sort of act on them. But we still have quite a bit of room between Mike's OP and what we're talking about here. And again, this is one of those things. Remember the business we're in. We're not selling toothpaste here. We're selling lawn and garden products. And while April is -- and look, POS has been fantastic so far this year, so that's a really good sign in those southern markets. April is not a particularly challenging month from sort of a comparative point of view, just because COVID really put a blanket on any retail last year in April. It's going to be sort of May and beyond where the real how does it -- how are consumers reacting to some more freedom. That's the part we don't know. We're increasingly comfortable that the numbers at year-end can be good, and the POS numbers so far are making us feel pretty good about it. But we are very sensitive to what's happening at the street level with the consumer right now as COVID hopefully begins to wind down and people have the ability to get outside away from just their homes. Mike, anything you want to add on sort of -- Mike is very -- he's a tough guy, but he's pretty positive about the business. I don't know, Mike, I...

No, I think we'll know more in May and June. I mean sitting here in April last year, only up 2%. And then the way it took off, it has continued. We are looking at -- we did not have enough inventory. So part of what you know about drivers is we left a couple of hundred million dollars on the table, as we said [ in the state ], but catching that up. And the consumer continues to buy. Early indications in March on Bonnie was we thought that's when panic buying of plants really took place. They were actually -- we thought they would be down in March, they were actually a little flat to a little bit up. And I think they were up 5% in March, not blowing April away, but it's an indicator that it's the stickiness of what we're seeing. And I think the advertising and all that's playing into that. But we are trying to make it a 365 day a year event. And that's where our advertising is going. That's the benefit of live goods, indoor and outdoor. Those are the type of activities we're looking at.

But look, we are seeing, Joe, a lot more retail inventory. Retailers don't want to be out of stock. Again, much more promotion. Again, not probably at the level of '19 and before, but very much effective, I think, promotional plans to keep consumers engaged. Because remember, that's like 20 million consumers. It's not just new consumers to us. It was new consumers to retail that I mean our people are homeowners. And so it's a very valuable group to a lot of our retailers. So there's a lot of work to keep them in. And I think what Josh said, which is -- I can't predict the end, but we're pretty much full bore right now. I was reading -- I don't know if you read the Tiger Woods thing about his crash, I saw he was -- they said that he had like a 98% accelerator level. That's like the level of the accelerator as he crashed. So he was like floored. We're pretty much slow right now. And I want to sort of thank Mike and his operating team for not ending up in the woods.

Not yet.

I appreciate that.

Not yet.

Can you add about what we're seeing with millennials or the longer-term growth algorithm?

Yes. I was just going to say, I think this holds not just right now, Joe, and everybody is kind of talking to this season, but just the stickiness of the category that we're seeing. And we do a biweekly survey, not just with millennials, but across the board. And just the gateway that you see even with succulents and other live goods with even the earlier generations as well as like really, really powerful. And I think the other piece, too, the retail engagement, it's been alluded to a few times, it's not just your typical home centers. You're -- I mean, if you've been into a Costco or a tractor supplier, any mass retailers, I mean they're using lawn and garden and live goods and plants and thus our categories as a gateway into all retail categories. And I think that's a piece that will not go away here in the short term and consumers continue to respond super positively to the category. So I think that's where, at least in my seat, I continue to be bullish beyond just the season as well.

I appreciate it. My second question is on pricing broadly. Talk about getting some pricing in the fourth quarter this year. Obviously, commodity and transportation costs are moving higher. My bigger concern that was '22 because obviously, you're not hedged to a great extent for next year. How do you see pricing playing out next year? And do you think you'll have that lever to pull enough to offset what might be a significant increase in commodities and transportation costs next year?

Yes. I guess that's the answer is I don't want to be real specific, but we're talking at least mid-single-digit pricing sort of later in this year, a lot of those retail partners, we are either have had that discussion or in the discussion. But this is one where we're not being greedy. This is a matter of covering costs. And I am sort of, as an American, I understand that people will have stuff, one way to deal with demand -- excessive demand is to price for it. But I do think that at least if our business is a barometer, there's a lot of pricing pressure out there on our raw materials. Bill was asking a question on M&A. One of the things we're looking at is our own raw materials and some of the raw materials we have, Joe, we're the biggest user in the world of some of our raws: cocoa, coconut husks, peat, things like that. There's a lot of pricing pressure out there. We are not going to be on the wrong side of it. That, I can guarantee you. But I'm not sure it's great for America. And we are deeply in discussions or have concluded discussions on that with our retailers. But I don't think it's a matter if retailers are watching this, I'm sure they are. This is not a matter to be unhappy with us. This is just a matter of freight, plastics, urea, some of the basics in nutrients are just off the charts, and we're going to have to price for that. Mike, anything you want to add on it?

One of the biggest obstacles now is capacity. And so you're fighting for capacity. And so getting out ahead of that and buying. And then part of our inventory plans and stuff is to make to sure -- to ensure that you have to supply. And so -- but we're sharing that data with our retail partners. And so we're trying to do the right things to drive the business. So but Jim is right, we're at target, we've already had conversations. And I think that's going to -- I think we're going to work through that very well.

All right. Eric Bosshard, Cleveland Research. You are up next, sir.

First of all, a question for Chris on market share. I'm interested in 2 things. First of all, as you look -- and I know that you don't have real market share numbers, but you have salespeople in the field that have a sense of what's going on. The first thing is your share in California relative to other states, is it similar? Is it notably better or different between those 2 buckets?

I would say our share in what I would consider these sort of large legacy states, which is sort of Colorado and kind of the entire West Coast is probably higher than it is on average. Dan went through and Jeff Kwiatkowski went through sort of our key states and the business that we do in and you know our business is pretty concentrated in kind of the top 10 listed states. I think we've got extremely strong share in those states. There's parts of the East Coast that we have less -- a little bit less share and some of our competitors like Hydrofarm, I think, were earlier to those states, and this is really prior to Sunlight acquisition for us. So again, like you said, we don't have a real fine gauge of what those share numbers are. But if you look at our growth and you look at the growth of some of our competitors and retailers who are now public and reporting their numbers as well. And I think we feel pretty good about the share we have and share gains that we've gotten over the last couple of years.

Well, maybe put it differently because I thought it's a good answer, by the way. But we've actually talked about this quite a bit. How important is your East Coast business. Or when I say East meaning, let's just say, east of the Rockies, each of the Mississippi, I don't know what you want to use.

Look, when I think East Coast or east of sort of the known world as it relates to this business with the exception of Michigan, the Tristate area is going to be unbelievable force. So we talked about this during the presentation as well, and Brian talked about it during the government relations stuff. New Jersey going and this is something we've talked about for years, this New Jersey will be a tripwire for the entire East Coast. We're already seeing it. I mean, how long was it after New Jersey announced their recreation before New York followed suit. Now obviously, got other things that he's trying to sort of play sliding hand with, but I think the movement there was no coincidence. And that's a -- you combine the Tristate, New York, Pennsylvania and New Jersey, you're talking more consumers and the research we've seen says higher per capita consumers of cannabis than there are in California. And that will cause some of the business to shift out of California, the legacy business that we see in California that is not going through the current legal markets there. Our belief, and we feel pretty confident and this is that a lot of that is to supply in the illicit markets in the Northeast that will soon have their own legal domestic supply. So I think we'll see some rebalancing geographically.

So as you -- the second piece of this, what I guess I'm trying to figure out is there are jump all as states open up, and licenses happen and guys open facilities, your share position within that. And what I'm trying to figure out is, is there a reason why you have a competitive advantage or disadvantage in the legacy states relative to these jump all states? Or if there's anything different you're doing to strengthen your position in winning these jump balls as these states come online and people are investing to put in place their capacity.

Yes, absolutely. We're doing a lot of work in these new markets, your jump all states to give ourselves an advantage and win those states and win those customers over. And that deploying our technical sales team. Now these are guys who can work with growers from before they break ground all the way through construction of their facility to kind of handhold that whole process. And then just having material and supply on the ground in these states, which is getting a distribution network, the size that we have is a challenging and expensive thing to do, and it takes a lot of money and time and expertise. And Dan talked about building out a new DC in Jersey. And that is all with the intent of saying we typically see, and we've told you guys this before in calls, 12-, 18-month lag from when a state will pass the law until we start seeing a significant increase in business. So we got a facility that's standing up in Jersey right now as we speak because we anticipate that business is probably 12 months out, and we want to be ready with a bunch of inventory and a lot of salespeople on the ground. We're hiring people in New York as well.

A question that I would sort of throw at you, which little bit of a -- I'm not sure what the answer is going to be. I think what you're seeing is a lot of the very successful legacy growers in the United States are looking themselves at the East Coast. So I think how the permits are the, call it, freedom to operate for your -- a lot of the -- I think if you look at Florida, it's a pretty good example. I think you're seeing a bunch of those permits being purchased by a lot of left coast legacy people who are -- have a lot of experience using our products. And I think you're -- I think you're likely to see that continue. I don't know when.

Yes. No, for these guys who are coming out of a pretty established markets who have been doing their thing for a long time and who've come to trust our brands, they're -- you really got to kind of upset people for them to switch in this industry or present them with really exceptional innovation, which is something obviously we endeavor to do. But we do expect as some of our longer-term growers, consumers of our products and brands do move into new states, which is something we're seeing every day as guys raise capital and pursue permits in new markets. that, that customer shift comes along with them to those new areas.

Okay. Let me just ask it more directly. Are you concerned about it?

About our ability to win in new markets?

Yes.

No, I'm not. I'm confident in our markets.

Okay. Second question, Jim, for you. On the consumer business for years, probably a decade, you've tried to gain share with the half of people who don't care about their line or their garden. It's been -- the performance has shown it to be a mature business. And today, it sounds like you're saying based on -- I guess, based on the experience of the last year, that's no longer the case. This is now a business that can grow 2% to 4% going forward. I either would ask you like really or like why do you think it now would be something different.

I could be an a****** dude. Look, fair enough. It's a reasonable question. There was a period, call it, 5 years ago, where we would have looked and said, people are going to want condos and they're going to live in the Beltways. And there's a lot of s*** in the press about that. There was. I had this conversation with Craig Menear at Depot, and he basically schooled me. And this is a while ago. This is 3 years ago maybe, where he said, dude, I don't think anybody has better data on homeownership than we do. And when kids get married and have kids, they want houses. And that's what our data is showing. And I would tell you now, we kind of -- I kind of shrugged at that initially. We don't view that as a joke anymore. I think we are actually believers that -- we brought a lot of demographers in, highly -- people would be considered expert. And they're like, dude, we want to be in your business. You just have a huge group of sort of young people like him and his younger brother, who -- when they grow up, and they both have kids and they're married, they want homes. And that's what we're seeing. Mike, I'm not sure ever believed in 0 to 2 to begin with, to be fair to Mike. Mike always believed we had more opportunity. It was just that every time we sort of forecasted more, we'd end up at 0 to 2, and we get beat up by The Street. And I think fair enough. The -- but Mike's always view was if we do this business better and the demographics are better for us, we can do better than that. So I think Mike would have said 2 to 4 was the number to begin with. And there's no magic to 2 to 4. I just added 200 basis points to what we were saying before, which was, call it, 1%, we're now saying 3%. But there is no magic to that. I just think that it's a number we actually really believe in that. And so do our retail partners, sort do our -- if you talk to Patty on the direct side, we believe in these numbers. And I think Mike would still say, I think the numbers are bigger than that. We're just trying to say, if we can add 200 basis points to where we -- so the answer is really. And I'd say we're big believers in it and it starts with the demographic so as people age in this country. And their desire to actually garden at a rate that our data shows higher than their parents. Mike, do you want to add anything? Because again, I'm making him out to be the nice guy who always has some big numbers.

No, no, no. I think our innovation, I think COVID's been a catalyst. I think we begin to see it as we started more solution selling. The tie with live goods is about that solution and that passion and talking about year around, we really were under-indexing indoor, the purchase of AeroGarden and that activity and how we build off of that, what we're trying to do with Greendigs. We left a lot on the table. So we were kind of a season and done. And I think the different channels we're selling through now, I think that's all -- we were the leading in the category and we weren't innovating enough, and we weren't reaching all our consumers and the possibility to get there. And I think we're in a much better position now to take advantage of that. But the data was there with the demographers saying people are going to eventually buy homes that Jim talked about. And I think -- I'm even bigger believer now that, that was right. And it probably moved us ahead 3 or 4 years where we thought it would be.

Well, Eric, just a couple of sort of points on this. Number one, Luke was, and I think he said this on calls, if he had $1 for sort of activation or $1 for sort of discount and promotion on a Black Friday, he would have taken that dollar on promotion, not in sort of activation. That has really changed. So that, I think, says a lot because you've known Mike a long time. The other thing is I don't want to sort of predict every single year. We clearly have outrun our capacity to make stuff. And that really -- we talk about that CapEx budget of where we think we need to be, at least in the short term, which is we need to build some capacity. But as we've budgeted that out, we have not tried to get real crazy about like what happens next year, call it '22? Is there sort of a correction there? What we've built out, I think, for our -- so we believe in that growth rate. And so if you take sort of the next 5 years, I would say that 0 to 2 plus 200 basis points is kind of what we believe in. For our capacity purposes, we're sort of throwing flat in there to sort of say there maybe -- I don't -- listen, I don't even -- actually, I have no idea if there's going to be any decline when people get out. It's one of those things where it doesn't sort of hurt to build that into our math. It doesn't s**** us up. So I think if you're saying like, really, you're just going to keep adding on. I think we're trying to build financials for the future, particularly around our capacity that assumes some modest correction and then growing back again. And we just haven't really we're not formal enough and not to have that conversation with you guys yet. But on the capacity side, we're planning capacity, we're building that in. So I think that helps with a little bit that really is I don't think we're being unrealistic

All right. Thanks, Eric. Jim, we've got a handful of questions from folks online. So let me address one of them, which is really more focused on the Hawthorne business and the go-to-market strategy in the future assuming that there's some change in federal law. And do we see a scenario in which we would be doing -- while we don't do direct selling to cultivators today, where we might be doing direct selling to cultivators in the future?

Yes. We talked about this a little bit on one of the prior questions. And yes, I think the answer is we anticipate that there would be some portion of our sales will go directly to the cultivator in a federally legal landscape. Again, it's not going to be all of our sales. We haven't designed our supply chain to handle sort of last mile distribution to every cultivator out there. There's a few key accounts that we have close relationships with who are large, pretty sophisticated operations that I would anticipate taking direct, but it's hard for me to put a number on what that portion of commercial business would be at this point. And it's something as we continue to work with our retailers, I think we'll understand what the future world looks like. But we do have more direct relationships with some of our commercial cultivators. We operate through these qualified resellers. So it's a little bit of a weird dance we do to sell. So we're already doing that. We do it through a third party just to be respectful of our compliance requirements.

Let's jump back to analysts. Jeff Zekauskas at JPMorgan.

Thanks very much. Not to be crazy about fiscal 2022. But can you talk about the puts and takes to either volume growth or volume contraction? How do you philosophically think about in 2022 relative to fiscal '21 in the consumer business?

This will sound the most unprofessional probably of everything we've talked about. And I think this is -- you'll see other consumer people sort of talking the numbers down pretty hard. I think probably in '21, we're not seeing that. I'm not sure we expect that. I think we're probably big believers at the higher end of our range on sort of POS, more toward Mike's operating plan. So I think that drives us to say, well, maybe that means '22 is going to be like a year of contraction as people have more freedom. Jeff, I just don't know that we know that. So I think that what I just said to Eric is how we're kind of factoring it. I think we're using a lower growth number. So call it, instead of 1%, we're using 3%, and we're calling that over a long term. When I say long-term meaning, call it, 5 years out, we're seeing that, which is 2% to 4% on the consumer side sort of unit volume growth. And that I think we wouldn't be surprised if there was some modest contraction. But beyond that, Mike, I don't know if you have your own ideas on that. I'm not sure we actually really believe that. We'll have a much more coherent conversation about that once we get past Memorial Day. Once -- because if you look at our business last year, we just had a tremendous business sort of beyond April. So I think that once Memorial Day happens, we'll have a real view of how the consumer is doing and how -- but it's not catastrophic for us. We're very confident in sort of the demographics of the space or attractiveness of the category. But I would say, like if you know the answer, I would say, tell me, we're trying to be reasonable and not overcook things because I would say to you right now, we are operating the sort of our guns full out and they're quite hot. And we're -- our -- I will throw credit to our manufacturing and supply chain people because Jeff, they're tired. I mean we've been operating -- I thought, if you look at our inventory levels, this -- you'll see, I think, when the quarter is over. Our -- I don't know if we break it out that way, Cory, can sort of say, but the consumer business, we really haven't built up any inventory at all. It's all gone out to the field. And POS is good, retailers are ordering. And I think that that's sort of Memorial Day beyond is when everybody is going to really start to figure it out. But I would say it's a big question, Mark, and we're not assuming anything. Mike, anything you'd add on that?

No. I think we're looking at -- we're tracking the stickiness. So the example I used on Bonnie for March, we're seeing that, that was positive. And I think we're going to track what happens in May. All indicators on April and April looks really strong, but what happens in May and June, that will actually determine where we're at. So we argued all last year on how to forecast and the forecast right now to tell you what '22 looks like, we're looking for the stickiness. And so early indicator is good, but I've been in this business long enough to know that you got to get through into May and early June.

And Jeff, the -- a lot of what we're doing right now, I mean, we are definitely dealing with capacity problems right now. And this goes back to we built our manufacturing base for effectively 0 to 2. And if you look over the last 3 years, the business is, I don't know, the consumer business, like plus 35% something like that. So we're -- Mike has just been working like crazy. He's reorganized a lot of his sort of most talented people to sort of get in there and start working on it. I know we're making a lot of progress. We're not looking at crazy numbers going forward. I think that, again, we're trying to use shorthand. And I think it's the bigger issue for us right now is not so much the volume side because I'm actually very confident in sort of 3%. That, I don't think is actually challenging for us. I think the more challenging part is that we got to catch up to where we were. When I made the comments that we're probably at a sort of customer supply place that was as bad as we were 20 years ago, we could get away with it because everybody s***** last year. But we've -- even for us to be where we are and go forward with like build in 0 growth, which, again, view that as shorthand for -- goes down and then comes back up. And that's -- there's no magic to that. We just made that up, too, but it sounded reasonable to us. We're running the business for right now. We think our biggest constraint right now is capacity, and we're just trying to sort of be able to build the business we have right now. So if a lot of people put pressure on me to say, what do you think about next year and beyond? I would say we're just trying to run the business right now, get through this year. It's a little bit like last year. It's probably not the greatest answer for you but it's honest, I can tell you that

Okay. So if I could try a follow-up. Maybe for Chris, when you think about yield changes in cannabis and you think about price changes in the sell price of cannabis products. And do any of those dynamics present either an opportunity or a threat to your long-term growth rate?

I think it maybe it presents a threat to our margin rate if we see significant commoditization of the price of cannabis to consumers. And we have seen just as an aside, we've seen that the price of cannabis to consumers has been a pretty good kind of leading-edge barometer of how our industry's performance will be in new states. So we saw back in '18, we did see a dramatic oversupply of cannabis in states like Washington and Oregon that drove down the consumer price and we saw our business fall off kind of in line with that. So we do see that -- and look, I would say it's a -- it would be -- it's incumbent upon the industry and us as members of it, and I hope leaders within the industry, to make sure that, that commoditization doesn't happen, at least not in sort of a runaway way. When you think of this industry, we had a lot of Board members before we got into the hydroponics industry forward to the GH deal and all the subsequent ones saying why should we get into this? It's going to be like let us see in the future. And I think shame on us and the entire cannabis industry to allow it to happen. I think it is and should be a lot more like wine and wine grapes. We're able to maintain a pretty elevated price of that product to that crop. But yes, if there were significant disruptions to the price of cannabis or erosion of the price of cannabis, I do think it would have an effect on our business and it's something we watch pretty closely.

But I think if you look at Florida, over the next years, do you think there's a move toward commoditization or toward more quality?

I would say, in a state like Florida...

There's a lot of outdoor growing, right?

It's a lot of outdoor growing. It's a relatively captive market. It's been a very limited kind of number of licenses in that state. So consumers haven't had a great deal of choice or variety in the legal cannabis that's available to them. That's something that's going to change over the next year. I think you'll see the introduction of higher price, significantly higher-quality brands entering that space in terms of their...

Indoor quality?

Yes, all indoor, and that I think will drive those prices back up. And the prices in Florida aren't bad. But yes, it is an important barometer for us for sure.

And colorado is probably the longest legal market.

Colorado is, I think, the most mature legal market.

But it has its own commodity, has it?

No, no, no. They've done a good job maintaining it. Retailers -- I'm talking about cannabis retailer, dispensaries understand that they have a role to play in maintaining that price as well. And I think there's -- we've reached a good mature state in certain states, and we're just going to have to encourage to the extent that we can through government relations and other work to make sure that new states roll out in rational ways.

And I'd also say that of all the -- what I would view is highly professional growers we talk to that I've participated in, they're growing as much as they can grow right now. So the demand is exceeding even in very long legacy states, people are growing to capacity right now.

Yes, we're seeing significant new build-outs in those markets as well. Jeff, I don't know if that answers your question.

It does. Thank you very much.

Alex from Berenberg, are you up?

I want to start with one related to the wholesale and retail relationship for Hawthorne. Given the current method of selling these products to the end user, I assume there's some larger growers that have a couple of different durable and consumable brands that they're working with versus just using Hawthorne's exclusive or distributed brands. So do you guys have any visibility into the proportion of growers that do not solely purchase Hawthorne's brands? And then how do you work with retailers to improve that usage rate among the growers?

Yes. We -- there's a lot of opaqueness in this industry. It just -- it's kind of part and parcel of the type of guys that we're working with on the grower side. I think it's relatively rare, and I hope this doesn't make us sound bad because I think we're doing business with a lot of great brands. And this goes back to the M&A question we had earlier in terms of how many product gaps we're filling. We still have gaps. There's things that we don't sell, things that -- brands that we don't own, product lines we're not in that growers need. So I think it's the rare grower that is running 100% Hawthorne a year. And frankly, I'm not sure that's a super realistic goal for us to say is that people will only use our products from top to bottom. The reality is there are certain product lines and categories that we don't want to be in or certain things that it just are too specialized, and we know we'll never be better than the competition.

But one thing we do know. If somebody is offering with a lot of likes, whether they're ours or not, especially if they're not ours, but we're in there pitching our ship.

Well, we're definitely in there. And look, that's one thing that we do work with our retailers and certainly with cultivators on is, we have the ability to leverage a pretty broad product line to sell our stuff in. So if we need to promote 1 SKU, if we need to promote our lights to selling our nutrients or promote our nutrients to selling best humidifiers or something like that we have the ability to do that, I think, much, much better than anyone that we compete with. So yes, we put a lot of thought into that internally and then working with our retail partners to make sure that we've got the most attractive...

Well, let me ask a different question, which is where do you think you are in the journey of essentiality because you weren't there. When we started out, we were just a bunch of businesses. The question is if you built your credibility and how far along that path are you to being sort of the kind of -- the partner, the vendor you want to be.

We're well down the path. I'd say we're more than 50% there. I don't know if we're 75% there. We've got brands and products we need to bring into the fold. We've talked about this. Our service levels were not acceptable at least to our internal standards for the past year, and that was running supply chain a lot more complicated under COVID and demand went up pretty dramatically, and we've done our best to juggle and I think we've done as well as anybody in the space or better than anybody, but it's still -- again, it's not the standards we hold ourselves to. So we need to get better there. We need to offer some more stuff. We still have capabilities we're developing. SAP has been online for a couple of years now, Salesforce, a much shorter period of time. We're learning more about our business, more about our customers. We have better visibility to sort of the nuts and bolts, the real details of our business than we used to have. But it will take us some time to really put that information together and crunch it in the way that we can apply to our customers.

Got it. That's helpful. And then my second one pertains to Bonnie and the expansion in live goods. What do you view as the most important factor for winning market share in the live goods category? And then how are you assessing transaction synergies within live goods deal the current pipeline you've got.

Well, I'm not quite sure I understand the synergy -- the synergy part. I think the Bonnie business is a really unique business and this -- a lot of this credit goes to the folks at Alabama Farmers co-op who built that business. It's a unique selling model. They go in there with a truck, they service on the spot. Your driver is effectively a CEO of that location. And they're dealing with how things look and how it's set up. And you got the brand of Bonnie. I think I've taken you guys through kind of the revelation I had when I was -- I do shopping trips before we had COVID, where I'll go out with associates. When you go out with a bunch of women associates to a home center and you've got just stuff everywhere. They get out to the live goods, herbs and veggies, and they shop it like they're shopping something they care about. And I think the brand matters, I think the experience of buying something that is -- this tomato or that pepper and they're thinking about their family and their garden and they -- you don't see other lawn and garden products being shopped like that. And I think Bonnie deserves credit for -- so I'd start with that's probably the most important thing is consumer engagement with herbs and veggies, what you can call noncommodity branded that have a pretty unique selling model. We've had retailers try to see if competitors could do it, and I think they've all come back big time because I think the model is really powerful. We think we can expand that in other value-added live goods. And that's primarily where we're at. I think that I use the word, why did people go to a place where they can buy lawn and garden products on a weekend, it's because -- not because they want to buy a bug spray because they're gardeners. And that gardening, we think, look, we -- this was a challenge with Randy, to be fair. The margins are a lot better than they were. But they're below sort of the corporate standard. And that, I think, made kind of Randy scratch his head. Mike and I -- and I'm going to say the entire management team and the Board of Directors felt differently, which is that if we're going to really be a gardening company, live goods, where you can make money on it is, and you don't overpay is important. We are definitely see cross-selling opportunities, and that is productive for us, so there's no issue there. We could take you through anytime you want sort of when we cross-promote. It's good for both the live goods and the sort of sundry products that go along with it. But Mike is probably the biggest seller of this. We were out looking at a M&A opportunity a couple of years ago. And Randy and I were kind of scratching our head, and Mike was just super pissed off that we were not as enthusiastic as he was on the opportunity. And Mike, why is live goods important to you?

Well, from my field experience, we could have the best set store. And the store doesn't come to life until there's color in store or the plants is the reason to do things. So now how do you take advantage of that with the genetics? How do you cross-sell it? Just take a raise that garden for example. Imagine you're going in and you're looking for your various plants, but if you could plan it and say it's the right size, so it doesn't overgrow, you don't have things falling over, can you be more successful? Can you put in complementary plants to reduce insects? I think Josh talked about that in his presentation. All of that is about that gardener solution. And we love that gardener, and we want to own that relationship with that gardener and sell products and that experience. And so -- and that's where the growth will come in versus just selling the product and advertising it one-off, that's the tie-in. And so...

I hope that answered your question?

Yes. No, that does. It's just the synergies part was more when you look at a deal, what are typically the synergies for live goods deals?

Well, I'd start with -- you just have to look at Bonnie. It is a very violent business, and it's scientifically a lot more complicated because if it's a little cold for a couple of weeks and you got to hold plants over in the greenhouse because the retailers don't want them yet. And you got to keep everything alive and you got to shrink -- this is -- so Sutterer going in there has done a lot of good things with shrink, which was probably the single biggest weakness, I think, of Bonnie was pretty excessive shrink that if you could reduce it, it's really beneficial. So I think that Mike and the team that are working closest with Bonnie are very much in favor of working with Bonnie on sort of the operations of the plant growing side. On our side, the sales and marketing, so start with immediately having Sutterer there who was one of our guys, who was hired sort of independently of us, but we -- Mike and I supported his move. It was a good move for him, and he's been good for the business. But the idea of -- it's a little bit like what Chris was talking about, which is what are the benefits of being part of Scotts. There's just so much stuff he doesn't have to do. So to rely on Scotts' marketing and Scotts' sales, with their ability to operate, and I'm going to say with a view that is very much shared with Alabama Farmers Co-op and us of let's do more, meaning to some extent, a little bit capital freer in regard to building out capacity. I think it's a very beneficial relationship between Scotts and Alabama Farmers Co-op and Sutterer and the team there are very much energized. So it's -- there's a ton of synergy there. If -- hopefully, I'm saying it right. But it fits together. I don't know, what was it that Forrest Gump say, like

Peas and carrots...

Peas and carrots, whatever. It's really good.

Jim, 2 quick questions that came in online, and then we'll wrap up here. First one came in from one of our analysts just a few minutes ago. Related to Chris, this is probably more directed for you and your team. Just the competitive landscape in the lighting industry. There was some thought at one point that some of the bigger lighting brands would come in and compete directly in the space and what's actually transpired there? And where do our brands sit right now from a competitive perspective as it relates specific related to the lighting category?

Yes. So I'll tell a little bit of a story here. I don't know if we've gotten into this on earnings calls before, but I'm lucky enough to be able to work with Mike Porter up at Harvard Business School as a strategic adviser to the business and a Board member to Hawthorne. And we were up at HBS, talking with Mike, this was probably 4 years ago at this point. And the lighting business was challenged as was the rest of the business. And he said, "Are you guys going to be innovators here? Or are you going to kind of be fast following Philips and OSRAM and the like?" And at the time, we didn't have the same line of sight to the innovation that we've been able to kind of create for the past few years and been successful doing. We said again, we might be kind of following those guys. But we've got a good brand in the space, and we have a good relationship with the growers, and we think that will be enough and he was like, "Look, sell that business to one of the big guys before it loses value." Now Mike Lukemire was happened to like be in the laboratory at the time. He came back in and it was like, "Mike, Porter is suggesting we sell the lighting business," which obviously, we didn't do. I came back and I was talking to Jim, he said, "How was it.?" I was like oh, Porter said we sold sell the lighting business. And he, Jim, disagreed. You guys who've covered the business for a while know that Jim has a particular way with words, can be pretty colorful. And he told me very, very forcefully he disagreed with that. Now we didn't sell the business, and we kind of triple down on our...

What did we say what we had to do?

Become leaders, become innovators in the space. And what we've done since then, I mean, we mentioned -- Paul mentioned it was Gavita 1700 is the single biggest new product launch, not in Hawthorne history, but the entire Scotts Miracle-Gro group forward history. And then we've just -- we've innovated on that fixture and other fixtures in the LED line. As far as large scale kind of the big dogs, Signify, OSRAM and the like, they haven't entered the way that we thought they would. OSRAM did dip their toes in the water. They acquired a nice LED lighting brand called Fluence. But I think anyone who's tracked that investment is seen that -- and it's not like Fluence is what did it, but OSRAM is a business that was pretty challenged. They did that deal. I don't think it went super great for them. They subsequently were acquired by a European private equity shop who is in the process of, I think, divesting certain pieces of that business. Signify is someone we buy almost $100 million worth of components from every year.

Look, let me just kind of get to the point on this. So the answer was, we've got to be a serious player in sort of high-value indoor grown lighting, particularly on LEDs. I am really proud of what Hawthorne has done. We do these R&D field days where we have a major committee on our Board called innovation. And it's very well run and challenging committee, as far as being involved in kind of what we're up to. And we've started making trips out to some of the research stations that are part of Chris's business. And it is so impressive when you have these field days, we tend to sit in our business. It's a little bit like, I think this venue we use today, somebody said, it's like going on a trip with you guys. That was how we designed it. And Jim and his team did a fantastic job, I think, actually putting it together. But when you get out in the realm and you actually see the basic research, and I mean it, basic research that's happening on horticultural lighting, particular LEDs at Hawthorne, it is incredibly impressive. And I would say Hawthorne is not a little kid anymore that's dependent on somebody else's parts. They have deep relationships with partners on the technology side. And it's -- the market share, I think, reflects the innovation in the space. And they are just getting going.

Yes. And one thing that I want to talk about, and I know we talked about it a bit in the video or videos, I should say, but the new light that we just launched, that could be the 1930 compact LED top light that is a really incredible accomplishment. I'm not saying this to pound my chest. I was really saying it to kind of pound the chest of the R&D team. This is guys, Carlo and then K and...

Well, your manufacturing partners.

Yes. And we've got some fantastic third parties that help us kind of -- that are kind of what we would call force multipliers for our business. So that's a piece of technology that is completely unique in the marketplace in the world. There's -- it's protected. We've got a number of patents on various elements of that design. It's the only thing like it in the world. And we are starting to see really incredible traction. When you look at the sales curve sort of our launch of that product, it's mirroring the 1700, I mean, spooky closely. And if that fixture performs like a 1700, well, we're going to have ourselves a lighting business as well in excess of $0.5 billion, just an LED lighting business that's north of $0.5 billion. So we're feeling good about where we're on and our ability to compete with, frankly, any business out there.

All right. One more. This is more of a U.S. consumer question to wrap up and it kind of ties back to the issue of millennials and marketing to millennials. What are we seeing in terms of their mindset around "eco-friendliness" and kind of our portfolio. And then how do we square their mindset around those issues with the controls portfolio and specifically products like Roundup that have been obviously in the news over the last couple of years.

That's hell of a way to end. First of all, we sell the consumers and we design products for consumers. Like our performance organics, Miracle-Gro soil products and fertilizer products. If my father -- well, he probably would have hit me if I had said I could design an organic product that works as well as Miracle-Gro or better. We've done that at a reasonable price. And so I think the world, the R&D we're doing, where we want to innovate, we can innovate in natural organic products that where we have the quality and the pricing is fair and consumers want that stuff. There's always been a lag between people saying, I have a cockroach and I want like a nuclear product or I want a soft product to use around my kids. I think a lot of people when it comes to fire ant and cockroaches default to out of my house, please, now. So I think there is a lag there. We have, as the whole Roundup sort of catastrophe unfolded. And I want -- I'm sure I'm making my lawyers uncomfortable, maybe Bayer. But we, and my family, so my management team, the family, the Board has asked for a lot of independent looking at how comfortable we sell on that product. And I would say, and remember, I don't have a board that's like devoid of technical people. I have past administrator of U.S. EPA who is not a political person. He was a career scientist promoted to head the EPA. And so we're getting good advice internally and externally for toxicology, the whole thing. We continue to be comfortable selling that product. We also launched an entire line of our own that had alternative chemistry. A lot of that natural product. And so -- and that product does well -- is doing well also. But I think that we -- the people that we -- first, we will not sell a product that we don't think is safe. Let's start with that. Second, we sell products to consumers. And if they want something, we're going to make it for them and not make them leave our company for that. But we have not seen bad sales data from Roundup throughout sort of the travails that Bayer and Monsanto have dealt with that product line. So it continues to perform. And our alternative chemistry products under the Ortho brand name continue to perform very well. So I don't know, Jim, do you think that answers the question?

Yes. No, I think it does, Jim. And I think we've seen really good results with consumers from both brands, and we'll continue to. I think it's really been an issue of consumer choice, and I think we've got all fronts covered. Jim, I think just in the interest of everybody's time, I think it's -- we can wrap up. We've taken all the Q&A that was from our analyst community here. Any finishing comments you want to have before I...

I really -- when Jim came to me and said, what do you think about a virtual investor event. We talked about, this is a few months ago, and we decided to do it. Mike, I think, was freaking out because he's got a heck of a business he's running right now. So he just wasn't quite sure he wanted to support the work that would go into this. It became clear a little bit like an R&D field day that we could take you guys on a trip that we could never do if we were just sitting in like some hotel room talking about the business. As I said, I want to be very complementary of Jim and the team because taking the sort of concept of let's take them around -- let's take them on a trip, which is what I've told Jim, it would take 2 weeks to do and give them a real feel for why we feel the way we do about the business. Jim, I think you achieved it. And I think your technology partners were also helpful getting this thing out over the air. But a lot of work went into it. I hope, listen, I hope nobody feels worse about the company than when we started. But it's -- we really feel super lucky to have an opportunity to run a business like we're running. And it's really exciting. We're -- we're hiring a lot of people right now. And let me tell you something about that. Lots of incredibly qualified people want to work for us, so it's a tight labor market. People think Scotts is a pretty cool company. And so do we. So I think that's all I have Jim.

I appreciate the kind words, Jim. And since I have the opportunity, let me just quickly shout out to folks on my team, Tom Reese, Tom Matthews, Dana Casper, Axel Hood, Jonathan Wade. Those guys have been locked down in a conference room for the last 2 weeks, working 15-, 16-hour days putting this together. So the congratulations goes to them. So I'm proud of their work. In terms of reaching back out to the investment community guys, we will be announcing our Q2 results on May 3 -- May 5, rather. And as we have historically done, you could probably expect us to give you more of a real-time update on the business, especially the U.S. consumer business from a POS perspective at that time. In the meantime, if anybody has any follow-up questions from today, feel free to reach out directly to me. My direct number here is (937) 578-5622. If you don't get me, you'll get Heather, and I'll get back to you as soon as I can. Otherwise, I hope you guys have found this to be a useful day, and that you've learned something more about the company, and I appreciate your support and look forward to talking to you again in the future. So we'll disconnect at this point. Thanks.