iPower prepares its IPO as hydroponic stocks surge on cannabis legalization

Are you one of the 19% of Americans that took up gardening during COVID? If not, this company is here to help you set up your very own living room grow-op. 

Hydroponic Stocks: iPower, a retailer of hydroponic equipment systems, is going public this Friday with an expected valuation of $250m.

The global population boom is fueling the need for better farming

Hydroponic farming, the method of growing plants using mineral nutrients instead of soil, can produce a faster and larger yield than soil-grown plants.

iPower, one of the main online retailers of the equipment, benefited alongside larger competitors as product demand surged during COVID:

• Hydrofarm Holdings ($HYFM) — 2020 sales increased 45% and its stock is up 34% since going public in Dec 2020.
• GrowGeneration ($GRWG) — 2020 increased 145% and its stock is up over 850% in 2020.

Beyond satisfying our boredom, hydroponics solves a global problem — feeding a surging population, which would require a much greater level of agriculture.

But compared to traditional agriculture, hydroponics is a drop in the US $1.1t agricultural bucket—with hydroponics making up less than 1% of the industry. Analysts are forecasting the industry to grow to $17.9b by 2026 — up from $9.5b in 2020.

Quick take on iPower’s IPO

After a sharp increase in demand from COVID, iPower reported:

• Growing sales: $39.9m in 2020 — up 75% from 2019
• Increased profitability: $1.9m in 2020 — up 275% from 2019

But iPower has some challenges ahead of it. The company has become over-reliant on third-party platforms:

• 75% of its products are sold through third-party platforms like Amazon, Walmart and eBay.
• 25% is sold through its own website, Zenhydro.com.

Any changes in these platforms could significantly impact iPower’s ability to acquire customers.

For investors… Hydroponic stocks are feeding off the cannabis industry

Hydroponics is a common method of growing cannabis — and iPower is using the growth of cannabis as part of its sell to investors.

According to iPower, legalization in the US and Canada had a positive impact on hydroponic stocks. While iPower expects to benefit from further legalization in the US, investors shouldn’t rely too much on cannabis to power its growth.

• iPower doesn’t know how much of its products are being used for growing cannabis.
• The unexpected growth in hydroponic equipment could also be a temporary bump from COVID.

With its IPO, iPower is planting the seeds for its future growth but investors will be expecting growth as if they were magic beans.