Here’s My Favorite High-Tech, High-Growth, Low-Risk Pot Stock

They call it “weed,” and in its most primitive, natural state, you can find scraggly little cannabis plants growing wild in some pretty dingy, inhospitable soil.

But commercial medicinal- and recreational-grade cannabis – the “good stuff” – is a different story altogether…

Every pot grower knows lots of care, technique, and, of course, technology goes into the cultivation and feeding of marijuana plants so they can flower and produce a whole host of commercially and medically useful compounds – especially the psychoactive tetrahydrocannabinol-9 (THC) that gets users high.

This is seriously labor- and tech-intensive stuff. It’s also the specialty of the company I’m going to show you today.

It’s one of the fundamental picks in my Nova-X Report’s Roadmap to Marijuana Millions model portfolio.

What’s more, in my view, it’s absolutely essential for tapping the profit power in legal cannabis and keeping your risk low…

When It Comes to Weed, Soil Is Very “Last Year”

Pot plants must – repeat: must – be exposed to light for 12 hours a day – and kept in darkness for just as long.

Kayvan Khalatbari and Nick Hice, co-owners of Denver Relief, a medicinal-marijuana dispensary, told the Denver Post that “the best place to grow marijuana is in a room in the basement with a locked door so light doesn’t inadvertently get in when the plants are ‘sleeping.'”

That’s fine if you’re a “grow-your-own” private toker. If you spoil a “harvest” or two, you won’t go broke or out of business.

Not so for the professional, large-scale cultivator. He or she has precious little room for error. As they say in the trade, the “plants have to flower.”

To protect their investment, growers turn to state-of-the-art greenhouses containing high-tech devices and monitors such as hygrometers, which see to it that humidity levels never get above 50%, and CO2 tanks, which add the carbon dioxide that plants breathe in to the indoor air.

Another way that the major growers control cultivation is through “hydroponics,” which is a method of growing plants in mineral- and nutrient-laced water, without soil.

According to Manifest Minds LLC, the hydroponically grown plants will make up a $24 billion market by 2018. All this barely scratches the surface of marijuana technology. Growers also need high-powered horticultural lightbulbs, custom regulated fans, valves and pumps, nutrient and mineral supplements, plus specialized “grow tents.”

With growers so dependent upon technology to operate this soon-to-be $200 billion industry, it’s no surprise that Silicon Valley is pouring money into it: According to Cleantech Group, venture capitalists sank $976 million into agriculture startups.

A 2015 report by MarketsandMarkets estimates that the market for “smart” greenhouses will reach $1.2 billion by 2020.

You see, I believe that $1.2 billion target is a tiny fraction of the potential profits to be had from this niche, so I’m setting us up for maximum upside (and, as you’ll see, absolute minimum downside risk) from this trend…

Mom & Pop Growers and Massive Cultivators Alike Love This Company

While the legalization of marijuana is creating the need for acres and acres of professionally grown cannabis, you shouldn’t forget the little guy. After all, for decades thousands of consumers have been growing their own, even while risking trouble with law enforcement. By one estimate, $60 billion worth of illegal pot is grown each year in the United States.

But, with marijuana now legal in 29 states and counting, the number of people looking to cultivate it for their own consumption is likely to skyrocket.

The marijuana-growing market could easily top $100 billion within five years, with much of that supply displacing imported marijuana from dangerous jungles in Latin America.

And while this opens up an opportunity for firms that cater to growers and gardeners, it also presents those firms with a strategic dilemma. Should they establish a strong early presence in the pot-growing community? Or wait until the social climate around cannabis normalizes – that is, until growing your own pot is no more controversial than brewing your own beer?

Scotts Miracle-Gro Co. (NYSE: SMG) is going with the first option: Embrace this fast-growing community of growers and, by doing so, “plant the seeds” for robust new paths to growth.

I think this is absolutely the right way to go; it’ll leave the “wait and see” crowd in the dust.

Scotts is already the world’s largest maker of lawn care and gardening products and is now making a big push into indoor plant cultivation, as evidenced by its April 2015 purchase of General Hydroponics.

As I said, “hydroponic” gardeners use air, light, and water to grow their plants indoors – without the need for soil.

This method means no mess and, more importantly, no pesticides. That’s a key consideration for green consumers.

Now, given the admittedly unsettled legal landscape around cannabis, Scotts’ emphasis on that market might seem like a dangerous choice.

But in truth, it’s less risky than it seems.

Even Without Pot, This Would Still Be a Smart Play

If the legal marijuana movement stalls, Scotts will still benefit from the growing demand for hydroponic equipment among young urban consumers eager to grow the herbs and greens that go into their salads.

But it’s hard to imagine the push for legal marijuana stalling out. In many respects, that genie has left the bottle.

Even before legal pot made this new growth potential possible, hydroponics had been very popular with a whole array of growers.

According to Manifest Minds LLC, the global crop value of hydroponically grown plants is on pace to rise from $17 billion in 2013 to $24 billion by 2018.

If other countries follow the lead set by the United States, pot cultivation – and hydroponics – could well soar much higher than that.

There are many reasons why Scotts Miracle-Gro should embrace hydroponics.

First, populations are increasingly concentrated in cities and even mega-cities. As people trade the countryside for the cityscape, they’ll have to grow their favorite herbs and vegetables indoors, using hydroponics.

Then there’s the perennial concern over pesticides; a number of pesticide bans have begun to take effect. Hydroponics, as we said, needs no pesticides, because it uses no soil.

On an even bigger scale, water shortages are a growing problem around the world and make crop growing harder. Hydroponics uses controlled “drip” irrigation, which drastically reduces the amount of water needed to grow plants.

What’s more, Scotts bought into the hydroponics equipment field simply because it’s a very attractive business, with much higher profit margins than traditional lawn and garden supplies.

And finally, there’s the happy fact that demand for hydroponics systems stays strong year-round.

Scotts CEO Jim Hagedorn isn’t just dipping his toe in the water here.

He sees the purchase of General Hydroponics as just the first of several moves, all aimed toward the goal of creating a $1 billion yearly business.

That’s a nice bolt-on addition for a business that currently generates around $3 billion in sales.

Hagedorn is a big believer in market share, and he likely looks at the emerging hydroponics and cannabis markets the same way. Scotts’ four leading brands (Scotts, Miracle-Gro, Round-Up, and Ortho) have a commanding position, with market shares ranging from 53% to 70%.

And the firm is out to make it easy for people to start using hydroponics equipment to grow either cannabis or food. Scotts Miracle-Gro has 2,500 sales associates that it sends to visit retail stores after training them on the merits of hydroponics.

Scotts Is Way More Than a “Pot Stock”

Make no mistake: This is not your typical cannabis investment. For one thing, Scotts is already quite popular with mutual fund managers, who like the fact that the firm has boosted its dividend for seven straight years.

Look, building a well-rounded cannabis portfolio is absolutely essential for unlocking massive profit potential with balanced risk.

Scotts is the clear choice to anchor the low-risk end of the spectrum. And its early move to embrace the cannabis community could help turn it into a robust grower.

— Michael A. Robinson

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Source: Money Morning