Better Marijuana Stock: Scotts Miracle-Gro vs. Auxly Cannabis

If you're interested in marijuana stocks but prefer to take the road less traveled, Scotts Miracle-Gro (NYSE: SMG) and Auxly Cannabis (NASDAQOTH: CBWTF) are two stocks to consider. Neither company fits the bill of what comes to mind first for many investors when they think about marijuana stocks.

Scotts has clearly been the bigger winner so far this year. But which of these stocks is the better pick for long-term investors? Here's how Scotts Miracle-Gro and Auxly Cannabis compare.

The case for Scotts Miracle-Gro

Scotts Miracle-Gro earns its designation as a marijuana stock thanks to the company's Hawthorne Gardening subsidiary. Hawthorne ranks as the top supplier of hydroponic gardening products to the U.S. cannabis industry. In Scotts' fiscal 2019 first quarter, this business contributed 47% of the company's total revenue.

The great news for Scotts Miracle-Gro's Hawthorne subsidiary is that the U.S. legal marijuana market is still in its very early stages. Sure, 33 states have legalized medical cannabis and 10 of those states have also legalized recreational pot. But many of these markets are still just getting cranked up.

Several more large states are also likely to legalize recreational marijuana in the near future. The Illinois state legislature could vote this year on legalizing recreational pot. A recent study suggests that the state's marijuana market could top $2 billion if those efforts succeed. New Jersey and New York could also legalize recreational marijuana.

California claims the largest legal marijuana market in the U.S. The state's legal recreational market got off to a very rough start last year. Scotts Miracle-Gro CEO Jim Hagedorn said in the company's Q1 conference call that he "completely blame[s] politicians" for the dismal launch. But the situation in California is improving and could be a big boost for Hawthorne over the next few years.

We can't leave out Scott's longtime core business of consumer lawn and garden products. The company has high hopes for its new Miracle-Gro Performance Organics line of plant nutrition products and its GroundClear organic weed control products.

One nice plus for investors that Scotts Miracle-Gro offers is its dividend. The dividend currently yields 2.74%

The case for Auxly Cannabis

Auxly Cannabis isn't a supplier to the cannabis industry, but it's not a traditional marijuana grower, either. Instead, Auxly operates across nearly every segment of the cannabis supply chain.

The company does grow cannabis, both directly and indirectly. Auxly's two wholly owned subsidiaries, Kolab Project and Robinson's Cannabis, together have 47,700 square feet of indoor growing space. The company also owns 80% of Uruguay-based outdoor hemp grower Inverell.

In addition, Auxly has deals with other companies that boost its production capacity. These include multiple streaming deals, off-take agreements, and joint ventures. The most important of these deals is Auxly's joint venture with Sunens, which promises to provide 155,000 kilograms of cannabis annually at peak operations.

Auxly's midstream extraction and processing focus is probably best exemplified by its DoseCann subsidiary. DoseCann has a 42,000-square-foot facility for extracting cannabis oil. This business could be especially lucrative for Auxly once cannabis derivative products such as edibles and beverages are allowed to be sold in Canada.

The company claims several downstream distribution and retail operations as well. These include Kolab Project's retail licenses and partnerships with provincial retailers Atlantic Cultivation and Inner Spirit.

Some investors could view Auxly as something of a bargain compared to many other Canadian marijuana stocks. Its market cap is less than $400 million. If the company's multiple irons in the fire get hot, Auxly could be worth a lot more within the next few years.

Better marijuana stock

In my view, there's a clear winner between these two marijuana stocks. Scotts Miracle-Gro is in a much stronger financial position than Auxly Cannabis is. I think the risks associated with investing in Scotts are much lower than those for investing in Auxly.

This doesn't mean there aren't any risks for Scotts Miracle-Gro. We saw that proven last year. However, I think that the long-term prospects for the company look solid. My take is that Scotts is the better marijuana stock and a top alternative to consider for investors looking to profit from the cannabis boom.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.