GrowGeneration Corp.

11/10/2026 | Press release | Distributed by Public on 11/10/2026 16:11

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 20, 2026. We caution readers that this Quarterly Report of GrowGeneration Corp. on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Forward-looking statements generally can be identified through the use of words such as "guidance," "outlook," "projected," "may," "likely," "anticipates," "believes," "expects," "estimates," "plans," "intends," "objectives," and similar expressions. These statements reflect management's best judgment based on factors known at the time of such statements. Actual events or results may differ materially from those discussed herein. The forward-looking statements contained in this report have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements contained in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements, except as required by federal securities laws. There may be additional risks, uncertainties, and other factors that we do not currently view as material or that are not necessarily known. Dollars in tabular format are presented in thousands unless otherwise indicated.
BUSINESS OVERVIEW AND RECENT DEVELOPMENTS
GrowGeneration Corp. (together with all of its direct and indirect wholly owned subsidiaries, collectively "GrowGeneration" or the "Company") was incorporated in Colorado in 2014. Since then, GrowGeneration has grown from a small chain of specialty retail hydroponic and organic garden centers to a multifaceted business with diverse assets. Today, GrowGeneration operates two major lines of business: our Cultivation and Gardening segment, composed of our hydroponic and organic gardening business; and our Storage Solutions segment, composed of our benching, racking, and storage solutions business.
GrowGeneration sources certain proprietary branded products and components used in our Cultivation & Gardening segment, including coir substrates, nutrients, irrigation parts, and lighting components, from suppliers located in India, Mexico, China, and other jurisdictions outside the United States. Beginning in the first quarter of 2025, the United States announced changes to U.S. trade policy, including increasing tariffs on imports, in some cases significantly, and potentially negotiating or terminating existing trade agreements. In April 2025, the United States announced changes to its trade policy, including a 10% baseline tariff on imports and additional country-specific tariffs for select trading partners. These new measures, implemented under Executive Order 14257, under presidential authority provided by the International Emergency Economic Powers Act ("IEEPA") and other statutory authorities, reflected a markedly more dynamic tariff environment. The policies created cost and supply chain impacts for importers and providers of international goods. These actions resulted in cost increases for certain imported products that collectively represent less than 10% of total company cost of goods sold. We partially offset these cost pressures through (i) improved purchasing leverage and volume-based supplier discounts, (ii) targeted price adjustments on affected product categories, and (iii) a continuing shift in sourcing toward lower-tariff regions, including the United States and Southeast Asia. We also expanded domestic manufacturing, assembly and packaging for select proprietary brands to reduce reliance on high-tariff import categories.
On February 20, 2026, the U.S. Supreme Court ruled tariffs imposed under the IEEPA were not authorized, and on March 4, 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection ("CBP") to refund amounts previously collected. During April 2026, the CBP established a phased administrative process for submitting refund claims for certain IEEPA tariffs. During the three and nine months ended September 30, 2026, we received cash of $2.6 million for IEEPA tariff refund recoveries, which we recognized as a reduction of cost of sales in the Condensed Consolidated Statements of Operations. While we continue to actively pursue refunds for additional amounts previously paid under the invalidated IEEPA tariffs, the timing and ultimate receipt of any additional refunds are uncertain. Refer to Note 13, Commitments and Contingencies, of our Notes to Unaudited Condensed Consolidated Financial Statements in this report for additional information regarding IEEPA tariff refunds.
The President has continued to utilize other statutory authorities to impose tariffs following the February 2026 U.S. Supreme Court ruling invalidating the previous IEEPA structure, including new and replacement tariffs. It is unclear at this time what impact tariffs will have on our future financial results, including whether we will be able to obtain more refunds of amounts previously paid for the IEEPA tariffs or any fluctuations of the level of replacement tariffs imposed or the addition of any new tariffs through other means. We continue to actively monitor these developments and the evolving tariff environment and its potential effects on our cost structure and supply chain. We will continue to explore and adjust our mitigation strategies as circumstances develop.
MARKETS AND BUSINESS SEGMENTS
We have two operating segments, each its own reportable segment, based on our major lines of business: the Cultivation and Gardening segment and the Storage Solutions segment. We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and store operations and other operational expenses within each segment. Selling, general, and administrative expenses, such as administrative and management expenses, salaries, and benefits, share-based compensation, director fees, legal expenses, accounting and consulting expenses, and technology costs, are not allocated to specific segments and are reflected in the enterprise results.
Cultivation and Gardening Segment
We are a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening. Our main business strategy within the hydroponic and organic gardening sector has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization.
We sell a variety of hydroponic and organic gardening related products, including nutrients, additives, growing media, lighting, environmental control systems, and other products for indoor and outdoor cultivation. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, Ion lights, The Harvest Company, and more, the development and expansion of which are a key component of our growth strategy. Our target customers include commercial, craft, and home growers in the plant-based medicine market, as well as commercial and home gardeners who grow organic herbs, fruits, and vegetables. Additionally, through our wholesale division, we distribute many of our proprietary products to customers that are wholesalers, resellers, major home improvement mass-market retailers, and retailers in the specialty retail hydroponic and organic gardening industry.
We make our products available to growers through a variety of channels, including our hydroponic retail locations, a commercial sales division that provides white glove service to commercial cultivators, a wholesale division that markets to mass-market retailers and independent resellers in both the hydroponic and traditional gardening markets, and an online platform at growgeneration.com, which includes a B2B customer portal for commercial and wholesale customers. Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 19 retail locations across 9 states as of September 30, 2026. We closed four retail locations during the nine months ended September 30, 2026. Additionally, as discussed below, on November 6, 2026, management committed to a strategic restructuring plan which includes planned closures of four to five additional retail locations by the end of the first quarter of 2027. We continue to evaluate our retail footprint to identify cost redundancies and optimize coverage by leveraging nearby locations and our online sales platforms.
Storage Solutions Segment
Our Storage Solutions business, branded as "Mobile Media" or "MMI," provides customized storage solutions designed to enhance profitability, productivity, and efficiency for our customers by allowing them to save space and increase storage capacity. We cater to diverse markets with our products and services, including agriculture, retail, warehousing, office and administrative, food service, hospitality, golf and country clubs, and more. Our products include high-density mobile storage systems, static shelving, and other accessories such as desks, lockers, safes, and secured storage, offering a solution for every storage need. MMI also offers a wide variety of services, including site surveys, floor plan designs, capacity analysis, seismic calculations, permitting, and installation, in order to provide a comprehensive, turnkey solution for customers. Based in the Hudson Valley, New York, the MMI team has decades of experience successfully completing projects throughout the U.S., Canada, and Mexico.
Our target customers generally include small, mid-size, and large businesses seeking vertical space-saving solutions that are custom tailored to their space and brand in an effort to maximize storage capacity or gain space in their real estate footprint. Many of our customers are involved in the construction and design industries and include retailers, general contractors, and architects involved in new constructions and remodels for retail stores and fulfillment centers. Our customer base also includes
the golf industry, specifically country clubs needing to store more club bags and optimize their existing space, as well as controlled environment agriculture ("CEA") operators that cultivate indoors with vertical or rolling benching and racking.
STRATEGIC RESTRUCTURING PLANS
On November 6, 2026, management committed to a strategic restructuring plan (the "2026 Restructuring Plan") focused on long-term profitability in our Cultivation and Gardening segment as part of our accelerated, strategic transformation into a primarily commercial, proprietary-brand-driven business. The 2026 Restructuring Plan primarily includes reductions in cost structure by closing and consolidating four to five underperforming retail locations, workforce reductions, and other operational improvements. We expect that the restructuring activities associated with the 2026 Restructuring Plan will be substantially completed by the end of the first quarter of fiscal 2027.
We are not currently able to estimate the amount or range of amounts we will incur in connection with the 2026 Restructuring Plan, including charges related to the consolidation or elimination of real estate leases, employee termination benefits, and other associated costs. Management intends to exclude the charges associated with the 2026 Restructuring Plan from our non-GAAP financial measures, including Adjusted EBITDA. No amounts related to these events have been recognized in the accompanying Condensed Consolidated Financial Statements.
In July 2024, we announced a restructuring plan (the "2024 Restructuring Plan") focused on key areas of our Cultivation and Gardening segment, which primarily included product development costs, digital transformation initiatives, reductions in cost structure by closing and consolidating 12 redundant or underperforming retail locations, workforce reductions, and other operational improvements in inventory management, sales and marketing, and administrative activities.
As of March 31, 2025, we had substantially completed our 2024 Restructuring Plan. For the 2024 Restructuring Plan overall, we incurred a total of approximately $3.5 million in restructuring and restructuring-related costs, of which approximately $1.1 million were incurred during the nine months ended September 30, 2025 as described in Note 16, Restructuring of our Notes to Condensed Consolidated Financial Statements in this report.
GROWTH STRATEGIES
Our growth strategy is focused on expanding our portfolio and sales of proprietary brands, growing our commercial, wholesale, and e-commerce channels, increasing penetration of our Storage Solutions business across diversified end markets, and pursuing selective, accretive acquisitions that complement our existing businesses. As a result, we have built a business that is driven by a wide selection of products, a strong portfolio of proprietary brands, a solutions-driven staff located in strategic markets around the country, and pick, pack, ship distribution and fulfillment capabilities.
Since our founding in 2014, we have built our Cultivation and Gardening business through a combination of organic investment and targeted acquisitions, such as specialty hydroponic and organic gardening center locations, online retailers, proprietary products, and our wholesale distribution business. We continue to evaluate accretive acquisition opportunities involving businesses or proprietary brands that are similar or complementary to those we already operate, such as the acquisition of Hydro Generation Inc. (referred to as "Viagrow") on June 6, 2025, which further diversified our home gardening and hydroponic gardening proprietary brand product offerings as well as expanded our wholesale channel outreach to significant new customers through relationships with major home improvement mass-market retailers and e-commerce platforms.
Our main growth strategies for the Storage Solutions segment, which includes our benching, racking, and storage solutions business, MMI, are centered on driving recurring commercial sales opportunities and expanding the types of customers and industries to which we sell our Storage Solutions products, including greater penetration in CEA, industrial, and country club verticals.
COMPONENTS OF RESULTS OF OPERATIONS
Net Sales
We primarily generate net sales from the selling and distribution of proprietary and non-proprietary brand hydroponic and organic gardening products. In addition to our hydroponic and organic gardening product sales, we sell and install commercial fixtures through our benching, racking, and storage solutions business. Net sales reflect the amount of consideration that we expect to receive, which is derived from a list price reduced by variable consideration, including applicable sales discounts and estimated expected sales returns.
These sales vary by the type of product: consumables, such as nutrients, additives, growing media, and supplies that are subject to regular replenishment; and durables, such as lighting, environmental control systems, and storage solutions. Generally, in new markets where legalization of plant-based medicines is recent and licensors are starting new grow operations, there is an initial increase of durable product purchases for facility build-outs, which decrease over time as growers establish their operations. Thereafter, we tend to observe cultivators focus their purchasing patterns to consumables as the primary source of product need. In more mature markets, the sales patterns tend to favor higher percentages of consumable purchasing in comparison to emerging markets.
Cost of Sales
Cost of sales includes cost of goods and shipping costs. Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or net realizable value adjustments. Occupancy expenses of our retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of operating expenses within Store operations and other operational expenses in the Condensed Consolidated Statements of Operations.
Gross Profit
We calculate gross profit as net sales less cost of sales. Gross profit excludes depreciation and amortization, which are presented separately as a component of operating expenses in the Condensed Consolidated Statements of Operations. Our gross profit as a percentage of net sales, or gross profit margin, varies with our product mix, in particular the percentage of sales of proprietary brand products compared to non-proprietary brand products and of consumable products compared to durable products. Proprietary products typically have higher gross margins compared to non-proprietary products, and consumable products typically have higher gross margins compared to durable products.
Operating Expenses
Operating expenses consist of the following components: store operations and other operational expenses; selling, general, and administrative; estimated credit losses; depreciation and amortization; and impairment losses when applicable. Store operations and other operational expenses consist primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers. Selling, general, and administrative expenses consist of corporate salaries, stock-based compensation, advertising and promotions, travel and entertainment, professional fees, insurance, and other corporate administrative costs. Selling, general, and administrative expenses as a percentage of net sales typically do not increase commensurately with an increase in net sales. Our largest expenses are generally related to employee compensation and leases, which are primarily fixed and not variable. Our advertising and marketing expenses are largely controllable and variable depending on the particular market.
RESULTS OF OPERATIONS
Comparison of the Unaudited Results for the Three Months Ended September 30, 2026 and 2025
The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated Statements of Operations, including information presented as a percentage of net sales:
Three Months Ended September 30,
2026 2025 Year-to-Year Variance
Net sales $ 44,783 100.0 % $ 47,254 100.0 % $ (2,471) (5.2) %
Cost of sales 30,257 67.6 % 34,398 72.8 % (4,141) (12.0) %
Gross profit 14,526 32.4 % 12,856 27.2 % 1,670 13.0 %
Operating expenses 14,578 32.6 % 15,698 33.2 % (1,120) (7.1) %
Loss from operations (52) (0.1) % (2,842) (6.0) % 2,790 98.2 %
Other income 289 0.6 % 407 0.9 % (118) (29.0) %
Net income (loss) before income taxes 237 0.5 % (2,435) (5.2) % 2,672 109.7 %
Provision for income taxes - - % (2) - % 2 100.0 %
Net income (loss) $ 237 0.5 % $ (2,437) (5.2) % $ 2,674 109.7 %
Net Sales
Net sales for the three months ended September 30, 2026 were $44.8 million, a decrease of $2.5 million or 5.2% as compared to net sales of $47.3 million for the three months ended September 30, 2025.
The decrease in net sales was driven in part by our Cultivation and Gardening segment, which had net sales of $35.6 million for the three months ended September 30, 2026 compared to $38.4 million for the three months ended September 30, 2025. This decrease in net sales was primarily due to the closure of one retail location during 2025 subsequent to September 30, 2025 as well as the closure of four additional retail locations during 2026. This decrease was partially offset by increased penetration of sales to our commercial and wholesale customers and improvements in proprietary brand sales in the three months ended September 30, 2026. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended September 30, 2026 increased to 40.6% as compared to 31.6% for the three months ended September 30, 2025, largely driven by our continued strategic initiatives to increase sales mix of our expanded portfolio of proprietary brands. The percentage of Cultivation and Gardening net sales related to consumable products for the three months ended September 30, 2026 was 68.6%, a slight increase from 68.2% for the three months ended September 30, 2025.
Net sales of commercial fixtures within our Storage Solutions segment increased to $9.2 million for the three months ended September 30, 2026 compared to $8.9 million for the three months ended September 30, 2025 as a result of increased demand for capital investments by our customers primarily in the retail industry.
Cost of Sales
Cost of sales for the three months ended September 30, 2026 was $30.3 million, a decrease of $4.1 million or 12.0% compared to $34.4 million for the three months ended September 30, 2025. The decrease in cost of sales largely corresponds to the 5.2% decrease in net sales as well as the improvement in the sales mix of proprietary brand sales, given that proprietary brand products generally carry lower product costs as a percentage of sales than non-proprietary brand products. Additionally, during the three months ended September 30, 2026 we recognized a $2.6 million reduction to cost of sales related to IEEPA tariff refunds, whereas no benefit related to refunds was recognized in the three months ended September 30, 2025. Refer to Note 13, Commitments and Contingencies, of our Notes to Unaudited Condensed Consolidated Financial Statements in this report for additional information regarding IEEPA tariff refunds.
Gross Profit
Gross profit was $14.5 million for the three months ended September 30, 2026 compared to $12.9 million for the three months ended September 30, 2025, an increase of $1.7 million or 13.0%. Gross profit related to the Cultivation and Gardening segment increased $1.7 million, or 18.4%, for the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, primarily due to the $2.6 million reduction to cost of sales related to IEEPA tariff refunds as well as the
increased sales mix of proprietary brand products during the three months ended September 30, 2026. These increases were partially offset by the overall decrease in net sales volume related to the previously discussed retail store closures as well as higher freight and inventory write-downs related to obsolescence incurred in the three months ended September 30, 2026. The Storage Solutions segment gross profit remained consistent at $3.9 million in each of the three months ended September 30, 2026 and 2025.
Gross profit margin was 32.4% for the three months ended September 30, 2026, an increase of 520 basis points from a gross profit margin of 27.2% for the three months ended September 30, 2025. The increase in gross profit margin was largely driven by the Cultivation and Gardening segment, which had a gross profit margin of 29.9% for the three months ended September 30, 2026 as compared to 23.5% for the three months ended September 30, 2025. The $2.6 million reduction to cost of sales related to IEEPA tariff refunds contributed approximately 740 basis points to the Cultivation and Gardening gross profit margin, driving the increase from the three months ended September 30, 2025. Excluding this benefit, the Cultivation and Gardening gross profit margin decreased approximately 100 basis points as higher freight and obsolete inventory write-downs more than offset the gross profit margin improvement from an increased mix of proprietary brand products. The Storage Solutions gross profit margin decreased to 42.2% in the three months ended September 30, 2026 from 43.4% in the three months ended September 30, 2025, primarily as a result of industry pricing compression and higher cost of services for the Storage Solutions segment.
Operating Expenses
Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative expense, estimated credit losses, depreciation and amortization, and impairment loss. Operating expenses were $14.6 million for the three months ended September 30, 2026 and $15.7 million in the three months ended September 30, 2025, a decrease of $1.1 million or 7.1%.
Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers, were $6.4 million for the three months ended September 30, 2026 compared to $7.2 million for the three months ended September 30, 2025, a decrease of $0.9 million or 11.9%. The decrease in store operating costs was primarily driven by the closure of one retail location during 2025 subsequent to September 30, 2025 as well as the closure of four additional retail locations during 2026.
Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was $8.1 million for the three months ended September 30, 2026 compared to $8.5 million for the three months ended September 30, 2025. The decrease was largely driven by reduced depreciation and amortization costs, which decreased $1.5 million or 55.2% for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, primarily as a result of asset retirements in conjunction with the restructuring plan and the closure of retail locations as well as certain intangible assets reaching the end of their estimated useful lives. This was partially offset by increased selling, general, and administrative costs of $1.1 million, or 19.6%, largely due to increased employee costs.
Impairment loss was $0.1 million in the three months ended September 30, 2026 and was related to a closed, wholly-owned retail location classified as held for sale. Refer to Note 5, Property and Equipment for additional information regarding our impairment loss.
Other Income
Other income was $0.3 million for the three months ended September 30, 2026 compared to $0.4 million for the three months ended September 30, 2025, a decrease of $0.1 million or 29.0%. The decrease in other income was primarily attributable to decreased investment income on our marketable securities.
Comparison of the Unaudited Results for the Nine Months Ended September 30, 2026 and 2025
The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated Statements of Operations, including information presented as a percentage of net sales:
Nine Months Ended September 30,
2026 2025 Year-to-Year Variance
Net sales $ 126,389 100.0 % $ 123,920 100.0 % $ 2,469 2.0 %
Cost of sales 89,803 71.1 % 89,763 72.4 % 40 - %
Gross profit 36,586 28.9 % 34,157 27.6 % 2,429 7.1 %
Operating expenses 44,244 35.0 % 52,147 42.1 % (7,903) (15.2) %
Loss from operations (7,658) (6.1) % (17,990) (14.5) % 10,332 57.4 %
Other income 960 0.8 % 1,367 1.1 % (407) (29.8) %
Net loss before income taxes (6,698) (5.3) % (16,623) (13.4) % 9,925 59.7 %
Provision for income taxes - - % (2) - % 2 100.0 %
Net loss $ (6,698) (5.3) % $ (16,625) (13.4) % $ 9,927 59.7 %
Net Sales
Net sales for the nine months ended September 30, 2026 were $126.4 million, an increase of $2.5 million or 2.0% as compared to net sales of $123.9 million for the nine months ended September 30, 2025.
The increase in net sales was primarily driven by our Storage Solutions segment, which increased its sales of commercial fixtures to $24.0 million for the nine months ended September 30, 2026 compared to $21.8 million for the nine months ended September 30, 2025 as a result of increased demand for capital investments by our customers primarily in the retail industry.
Our Cultivation and Gardening segment had net sales of $102.4 million for the nine months ended September 30, 2026 compared to $102.1 million for the nine months ended September 30, 2025, representing a slight increase of $0.3 million. This increase in net sales was primarily driven by increased penetration of sales to our commercial and wholesale customers and improvements in durable product sales due to increased demand for capital investments by our customers in the nine months ended September 30, 2026. As a result, the ratio of consumables net sales as a percentage of Cultivation and Gardening net sales was 70.9% in the nine months ended September 30, 2026, as compared to consumables net sales representing 74.2% of Cultivation and Gardening net sales in the nine months ended September 30, 2025. This increase in net sales was partially offset by retail store closures, including four retail locations during the nine months ended September 30, 2026 and one retail location closed in 2025 subsequent to September 30, 2025. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the nine months ended September 30, 2026 increased to 39.1% as compared to 31.8% for the nine months ended September 30, 2025, largely driven by our continued strategic initiatives to increase sales mix of our expanded portfolio of proprietary brands.
Cost of Sales
Cost of sales for each of the nine months ended September 30, 2026 and 2025 was $89.8 million. Cost of sales remained consistent despite a 2.0% increase in net sales primarily due to the $2.6 million reduction to cost of sales related to IEEPA tariff refunds recognized during the nine months ended September 30, 2026, whereas no benefit related to refunds was recognized in the nine months ended September 30, 2025. Additionally, the increased proportion of proprietary brand sales during the nine months ended September 30, 2026 contributed to the lower cost of sales as our proprietary brand products generally carry lower product costs as a percentage of sales than non-proprietary brand products. These benefits largely offset the higher sales volume and increased mix of durable products during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025.
Gross Profit
Gross profit was $36.6 million for the nine months ended September 30, 2026 compared to $34.2 million for the nine months ended September 30, 2025, an increase of $2.4 million or 7.1%. Gross profit related to the Cultivation and Gardening segment increased $1.8 million, or 7.0%, for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, primarily due to the $2.6 million reduction to cost of sales related to IEEPA tariff refunds as well as the increased sales volume and mix of proprietary brand products. These increases were partially offset by higher sales mix of durable products, higher freight and obsolete inventory write-downs, and inventory sales discounts incurred in connection with retail location closures during the nine months ended September 30, 2026. Gross profit from our Storage Solutions segment increased $0.7 million or 7.3% in the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025, primarily as a result of increased sales volume.
Gross profit margin was 28.9% for the nine months ended September 30, 2026, an increase of 130 basis points from a gross profit margin of 27.6% for the nine months ended September 30, 2025. The increase in gross profit margin was largely driven by the Cultivation and Gardening segment, which had a gross profit margin of 26.2% for the nine months ended September 30, 2026 as compared to 24.5% for the nine months ended September 30, 2025. The $2.6 million reduction to cost of sales related to IEEPA tariff refunds contributed approximately 260 basis points to the Cultivation and Gardening gross profit margin, driving the increase from the nine months ended September 30, 2025. Excluding this benefit, the Cultivation and Gardening gross profit margin decreased approximately 90 basis points as higher sales mix of durable products, higher freight and obsolete inventory write-downs, and inventory sales discounts more than offset the gross profit margin improvement from an increased mix of proprietary brand products. The Storage Solutions gross profit margin decreased to 40.7% in the nine months ended September 30, 2026 from 41.7% in the nine months ended September 30, 2025, primarily as a result of industry pricing compression and higher cost of services for the Storage Solutions segment.
Operating Expenses
Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative expense, estimated credit losses, depreciation and amortization, and impairment loss. Operating expenses were $44.2 million for the nine months ended September 30, 2026 and $52.1 million in the nine months ended September 30, 2025, a decrease of $7.9 million or 15.2%.
Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and specifically identifiable operating costs related to our retail locations and distribution centers, were $18.9 million for the nine months ended September 30, 2026 compared to $23.9 million for the nine months ended September 30, 2025, a decrease of $5.0 million or 20.8%. The decrease in store operating costs was primarily driven by the closure of one retail location during 2025 subsequent to September 30, 2025 as well as the closure of four additional retail locations during 2026.
Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was $25.0 million for the nine months ended September 30, 2026 compared to $28.2 million for the nine months ended September 30, 2025. The decrease was largely driven by reduced depreciation and amortization costs, which decreased by $4.6 million or 51.8% for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, primarily as a result of asset retirements in conjunction with the restructuring plan and the closure of retail locations as well as certain intangible assets reaching the end of their estimated useful lives. This was partially offset by a $1.2 million increase to selling, general, and administrative costs, related to employee and professional services costs, and a $0.2 million increase to estimated credit losses for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.
Impairment loss was $0.3 million in the nine months ended September 30, 2026 and was related to a closed, wholly-owned retail location classified as held for sale. Refer to Note 5, Property and Equipment for additional information regarding our impairment loss.
Other Income
Other income was $1.0 million for the nine months ended September 30, 2026 compared to $1.4 million for the nine months ended September 30, 2025, a decrease of $0.4 million or 29.8%. The decrease in other income was primarily attributable to decreased investment income on our marketable securities.
Use of Non-GAAP Financial Information
The following non-GAAP financial measures of EBITDA and Adjusted EBITDA are not in accordance with, or an alternative for, generally accepted accounting principles ("GAAP") and should be considered in addition to, and not as a substitute for, the most directly comparable GAAP financial measures. We believe these non-GAAP financial measures, when used in conjunction with their most directly comparable GAAP financial measures, net income (loss), provide meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods, identification of trends affecting our business, and projection of future performance. Management uses these non-GAAP financial measures for internal planning and reporting purposes, and we believe that these non-GAAP financial measures may be useful to investors in their assessment of our operating performance, our ability to generate cash, and valuation. In addition, these non-GAAP financial measures address questions routinely received from analysts and investors and, in order to ensure that all investors have access to the same data, we have determined that it is appropriate to make this data available to all investors. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed in isolation as substitutes for net income (loss) as indicators of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). GrowGeneration defines EBITDA as net income (loss) before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude certain items such as stock-based compensation, impairment losses, restructuring and corporate rationalization costs, and other non-core or non-recurring expenses and to include income from our marketable securities as these investments are part of our operational business strategy and increase the cash available to us.
Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2026 2025 2026 2025
Net income (loss) $ 237 $ (2,437) $ (6,698) $ (16,625)
Provision for income taxes - 2 - 2
Interest income (289) (407) (960) (1,367)
Depreciation and amortization 1,186 2,649 4,301 8,921
EBITDA (1)
$ 1,134 $ (193) $ (3,357) $ (9,069)
Share-based compensation 474 421 999 1,239
Investment income 277 407 870 1,379
Acquisition transaction costs - 9 - 59
Impairment loss 70 - 290 -
Restructuring plan
- - - 1,141
Consolidation and other charges (2)
321 694 2,145 1,257
Adjusted EBITDA (1)
$ 2,276 $ 1,338 $ 947 $ (3,994)
(1) EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2026 include $2.6 million of IEEPA tariff refunds related to tariff costs incurred and recognized in prior periods. Consistent with the Company's treatment of the related tariff costs, which were not excluded from EBITDA and Adjusted EBITDA, the refunds have not been excluded.
(2) Consists primarily of expenditures related to legal settlements and contingencies, the activity of store and distribution consolidation, one-time severances outside of the restructuring plan announced July 2024, and other non-core or non-recurring expenses
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of September 30, 2026, we had working capital of $75.8 million compared to working capital of $77.8 million as of December 31, 2025, a decrease of $1.9 million. The decrease in working capital from December 31, 2025 to September 30, 2026 was due primarily to a net decrease in cash, cash equivalents, and marketable securities as a result of net cash used in operating activities as discussed below.
As of September 30, 2026, we had cash, cash equivalents, and marketable securities of $41.8 million. Currently, we are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our material future cash requirements from contractual and other obligations relate primarily to our operating leases. Refer to Note 8, Leases, of the Condensed Consolidated Financial Statements for additional information regarding leases.
We may need additional financing through equity offerings and/or debt financings in the future to continue to expand our business consistent with our growth strategies. However, management believes that the Company has sufficient liquidity to fund operations and meet its obligations as they become due for at least the next twelve months from the date of this filing. To date, we have primarily financed our operations through the issuance of common stock and warrants as well as cash generated from operations.
Cash Flows
The following discussion sets forth the major sources and uses of cash for the nine months ended September 30, 2026 and 2025.
Operating Activities
Net cash and cash equivalents used in operating activities for the nine months ended September 30, 2026 was $3.6 million compared to $7.2 million for the nine months ended September 30, 2025. The decrease in cash used in operating activities was primarily attributable to a lower net loss during the current period, as discussed previously within the Results of Operations, and changes in our operating assets and liabilities, including a $5.2 million reduction in inventory compared to a $0.4 million reduction in the prior period, reflecting continued sell-through of inventory. These benefits were partially offset by increases in accounts and notes receivable and a decrease in customer deposits during the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.
Investing Activities
Net cash and cash equivalents provided by investing activities for the nine months ended September 30, 2026 was $1.2 million compared to $7.2 million for the nine months ended September 30, 2025. Investing activities for the nine months ended September 30, 2026 were attributable to the maturity of marketable securities of $14.3 million and proceeds from disposal of assets of $1.3 million, primarily related to the completion of the sale of building and land associated with a closed retail location that had been previously classified as held for sale. This was offset by the investment of excess cash into marketable securities of $13.9 million and purchases of property and equipment of $0.5 million. Investing activities for the nine months ended September 30, 2025 were primarily attributable to the maturity of marketable securities of $33.7 million, offset by the investment of excess cash into marketable securities of $25.0 million, $1.0 million of cash paid for the Viagrow acquisition, and purchases of property and equipment of $0.4 million.
Financing Activities
Net cash and cash equivalents used in financing activities for the nine months ended September 30, 2026 was $2.1 million and was primarily attributable to common stock repurchased under our share repurchase program. Net cash and cash equivalents used in financing activities for the nine months ended September 30, 2025 was $0.1 million and was attributable to common stock withheld for employee payroll taxes.
Critical Accounting Policies, Judgments, and Estimates
For a summary of the Company's critical accounting policies, judgments, and estimates, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025.
Off Balance-Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.
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