GrowOp's Updated Data For The Medical Marijuana IPO

The controversial field of medical marijuana is heading to Wall Street.  An initial public offering is likely on the way from an equipment-maker for this sector.  GrowOp Technology Ltd. is soon to be entering a quiet period in what may be as soon as the next few days.  We recently spoke with Derek Peterson,  GrowOp’s founding-CEO, in a longer interview in February.  Some of the updated data has changed based upon what Peterson sent us this weekend, but it appears that the IPO filing is nearer rather than farther away in 2011.

GrowOp manufactures and sells indoor hydroponic and agricultural equipment and Peterson previously told us that he wants GrowOp to become the Apple of hydroponic technology.  The economics are amazing in this sector.  Smaller dispensaries can have annual sales of $4 million to $5 million, and larger dispensaries have annual revenues of $10 million and higher.  California has more than 500 hydroponic retailers, and GrowOp estimates that they generate more than $250 million in annual sales; nationally this is a billion dollar business segment with growth rates of roughly 40% in the last several years.

The total audit results for 2010 are being wrapped up and the indicated sales for GrowOp were roughly $800,000.00, but the sales in January-2011 were close to $275,000 alone.  GrowOp’s 2011 sales target for equipment given to us back in February was about $4 million to $5 million, with a goal of $10 million to $15 million for 2012.  Some changes have been taking place on the franchise figures and on partnerships in that arena, so we are going to hold off on giving any figures surrounding exact franchise sales data until we see it either in a press release or in the S-1 filing when that comes.  The franchise interest has been from California, Colorado, Michigan, and Arizona. The company is now also looking at a service for point-of-sale, something we did not hear about in our February interview.

GrowOp is still looking at ‘a mini-max financing round’ before the IPO, and Peterson gave us a figure this weekend that it would be in the $1.5 million to $3.5 million range.  Back in our February interview, Peterson said that the company was “in the ninth inning of the IPO process after its audit is completed.”  The company has signed a contract to be the sole supplier to a couple of online retailers, and one change that Peterson also noted this weekend was that it closed a deal with a Chinese company which manufactures digital controllers used to automate grow rooms and which been the sole supplier to a major brand in the US. This is aimed to secure patents and IP rights to these products and GrowOp negotiated with that outfit to brand exclusively for it.

Any company in the business around medical marijuana will likely come with more controversy than say a semiconductor or traditional food growing company.  Can you imagine the “threats and risks” section contained in its S-1 filing?  Taxation, regulation, political change, tampering, sabotage, crime, society-shifts, and religion are some  of the risks to the business.  Due to the controversial nature of this business and a host of other factors, this IPO is one which will require a more detailed analysis both before and after the entire IPO process.

JON C. OGG