What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2025-03-05 compared with 2024-02-29 · 81 added, 94 removed, 256 unchanged (41% of the section changed)

We are a leading independent manufacturer and distributor of controlled environment agriculture ("CEA") equipment and supplies, including a broad portfolio of our own innovative and proprietary branded products.

We are a leading independent manufacturer and distributor of branded hydroponics equipment and supplies for controlled environment agriculture ("CEA"), including grow lights, climate control solutions, grow media and nutrients, as well as a broad portfolio of innovative and proprietary branded products.

We primarily serve the U.S.

and Canadian markets, and believe we are one of the leading competitors in these markets in an otherwise highly fragmented industry.

and Canadian markets, and believe we are one of the leading companies in these markets in an otherwise fragmented industry.

For over 40 years, we have helped growers make growing easier and more productive.

2 unchanged sentences

From 2005 through 2024, we generated a net sales compound annual growth rate ("CAGR") of approximately 10%.

Hydroponics is the farming of plants using soilless growing media and often artificial lighting in a controlled indoor or greenhouse environment.

Hydroponics is the farming of plants using soilless grow media and often artificial lighting in a controlled indoor or greenhouse environment.

Hydroponics is the primary category of CEA and we use the terms CEA and hydroponics interchangeably.

2 unchanged sentences

We reach commercial farmers and consumers through a broad and diversified network of over 2,000 wholesale customer accounts, who we connect with primarily through our proprietary online ordering platform.

Our products are distributed across the United States and Canada including through a diversified range of retailers of commercial and home gardening equipment and supplies.

Our products are distributed across the United States and Canada through a diversified range of retailers of commercial and home gardening equipment and supplies.

Our customers include specialty hydroponic retailers, commercial resellers and greenhouse builders, garden centers, hardware stores, and e-commerce retailers.

3 unchanged sentences

First, we strive to offer the best selection by being a branded provider of all CEA needs.

Second, we seek to be the gold standard in distribution and service, leveraging our infrastructure and reach to provide customers with just-in-time ("JIT") delivery capabilities and exceptional service across the United States and Canada.

Second, we seek to be the gold standard in distribution and service, leveraging our infrastructure and reach to provide customers timely delivery of products and exceptional service across the United States and Canada.

Complete Range of Innovative CEA Products

We offer thousands of innovative, branded CEA products to provide solutions for our customers.

Our product portfolio spans lighting, growing media (i.e., premium soils and soil alternatives), nutrients, equipment and supplies.

Some of our most well-known proprietary brands include Active Air, Active Aqua, Aurora Peat Products, HEAVY 16, House & Garden, Gaia Green, Grotek, Innovative Growers Equipment, Mad Farmer, Phantom, PHOTOBIO, Procision, Roots Organics, Soul, and SunBlaster.

We estimate that approximately three-quarters of our net sales relate to consumable products, including growing media, nutrients and supplies that are subject to regular replenishment.

Our product portfolio spans lighting, grow media (i.e., premium soils and soil alternatives), nutrients, equipment and supplies.

Some of our most well-known proprietary brands include Active Air, Active Aqua, Aurora Peat Products, HEAVY 16, House & Garden, Gaia Green Organics, Grotek, Innovative Growers Equipment, Mad Farmer, Phantom, PHOTOBIO, Procision, Roots Organics, Growtainer, and SunBlaster.

We estimate that approximately three-quarters of our net sales relate to consumable products, including grow media, nutrients and supplies that are subject to regular replenishment.

The remaining portion of our net sales relate to durable products such as hydroponic lighting and equipment.

The majority of products we offer are produced by us or are supplied to us under exclusive or preferred brand relationships.

These exclusive and preferred brands generally provide higher gross profit margins compared to distributed brands and provide a competitive advantage as we offer our customers a breadth of products that cannot be purchased elsewhere.

We source individual components from our supplier base to assemble certain products.

Our proprietary, or house brands, generally provide higher gross profit margins compared to preferred or distributed brands and provide a competitive advantage as we offer our customers a breadth of products that cannot be purchased elsewhere.

We source individual components, raw materials or products from our supplier base.

Raw materials used in our nutrient manufacturing operations primarily include nitrogen, potassium, and phosphate.

In addition, our durables manufacturing operations primarily use steel, plastic, and aluminum as raw materials.

We source these raw materials from suppliers located primarily in the United States, Canada, Europe, and China.

Raw materials used in our grow media manufacturing include peat moss, compost, perlite, coir fiber, pumice and worm casings.

We source these components, raw materials and products from suppliers located primarily in the United States, Canada, China, and Europe.

One supplier accounted for over 10% of purchases in 2024 and 2023.

3 unchanged sentences

We believe that our six U.S.-based distribution centers can reach a significant majority of our U.S.

customers within 48 hours and that our two Canadian distribution centers can provide timely coverage to the full Canadian market.

In the United States, we currently operate distribution centers in Fairfield, California;

customers within 48 hours and that our two Canadian distribution centers can provide timely coverage to the Canadian market.

In the United States, we currently distribute our products and employ cross-docking logistics processes from our leased facilities in Fairfield, California;

Fontana, California;

3 unchanged sentences

and New Hudson, Michigan.

In Canada, we currently operate distribution centers in Surrey, British Columbia and Cambridge, Ontario.

In Canada, we currently distribute our products from locations in Surrey, British Columbia and Cambridge, Ontario.

Outside of North America, we operate a distribution center in Zaragoza, Spain.

2 unchanged sentences

The majority of customer orders are received through our business-to-business e-commerce platform.

Through our Distributor Managed Inventory ("DMI") Program, we partner with our network of customers to create customized, JIT supply chain solutions for large commercial end users.

In the United States, we currently operate manufacturing facilities in Paramount, California;

Arcata, California;

Eugene, Oregon;

Goshen, New York;

and Sycamore, Illinois.

Through our Distributor Managed Inventory ("DMI") Program, we partner with our network of customers to create customized, supply chain solutions for large commercial end users.

In the United States, we currently operate manufacturing facilities in Arcata, California and Eugene, Oregon.

In Canada, we currently have manufacturing facilities in Edmonton, Alberta.

The CEA Industry

Our principal industry opportunity is in the wholesale distribution of CEA equipment and supplies, which generally include nutrients and fertilizers;

Our principal industry is the wholesale distribution of CEA equipment and supplies, which generally include nutrients and fertilizers;

grow light systems;

3 unchanged sentences

water pumps, heaters, chillers, and filters;

and various growing media typically made from soil, peat, rock wool or coconut fiber, among others.

and various grow media typically made from soil, peat, rock wool or coconut fiber, among others.

Today, we believe that a majority of our products are sold for use in CEA applications.

PHOTOBIO MX LED, Active Air Commercial Humidifier, SunBlaster LED Grow Light Garden, Active Air Heavy Duty 16" Metal Wall Mount Fan, IGE Grow Racks, House & Garden Bud XL, and Roots Organics Soilless Hydroponic Coco Mix.

PHOTOBIO MX2 LED, Active Air Commercial Humidifier, SunBlaster LED Grow Light Garden, Active Air Heavy Duty 16" Metal Wall Mount Fan, IGE Grow Racks, House & Garden Bud XL, and Roots Organics Formula 707.

CEA is a component of the global commercial agriculture and consumer gardening sectors.

4 unchanged sentences

Today, we believe that a majority of the CEA equipment and supplies we sell to our customers is ultimately purchased by participants in the cannabis industry, though we do not sell directly to cannabis growers in the United States.

An agricultural

oversupply has impacted our industry, driving cannabis wholesale prices down and resulting in a decrease in indoor and outdoor cultivation.

We believe the oversupply has been impacted by the market impacts of the COVID-19 pandemic.

An agricultural oversupply has impacted the cannabis industry, driving cannabis wholesale prices down and resulting in a decrease in indoor and outdoor cultivation, which we believe adversely impacts the market for CEA products.

We believe the oversupply was initiated by the market impacts of the COVID-19 pandemic and is now partially the result of increasing cannabis production in

additional global markets.

Despite these factors negatively impacting the industry, according to certain industry publications, the U.S.

cannabis market is projected to reach approximately $57 billion by 2028, up from an estimated $30 billion in 2022, representing a 11.3% CAGR.

cannabis market is projected to reach approximately $57 billion by 2028, up from an estimated $30 billion in 2024.

We believe this forecasted growth in the U.S.

1 unchanged sentence

states, (ii) expanded access for patients or consumers in existing state medical or adult use cannabis programs, and (iii) increased consumption driven by greater product diversity and choice, reduced stigma, and real and perceived health benefits including pain management, the treatment of neurological and mental conditions, and sleep management.

In addition, states with legalized adult use cannabis may offer state governments with additional taxation revenue and state job creation.

According to a November 2022 poll by Pew Research Center, approximately 59% of U.S.

In addition, states with legalized adult use cannabis may offer state governments with additional taxation revenue and state job creation, which may incentivize states to continue broadening the potential market for cannabis products.

According to a January 2024 poll by Pew Research Center, approximately 57% of U.S.

adults say that cannabis should be legal for recreational and medical use, while an additional 32% say it should be legal for medical use only.

1 unchanged sentence

Benefits of CEA Adoption

Both the commercial agriculture and cannabis industries are adopting more advanced agricultural technologies in order to enhance the productivity and efficiency of operations.

Both the commercial agriculture and cannabis industries are adopting more advanced CEA agricultural technologies in order to enhance the productivity and efficiency of operations.

The benefits of CEA include:

4 unchanged sentences

• Potentially lower operating expenses from resource-saving technologies such as high-efficiency LED lights, precision nutrient and water systems and automation.

CEA implementation is driven by the factors listed above as well as fruit and vegetable farming, consumer gardening and the adoption of vertical farming.

CEA implementation is driven by the factors listed above as well as increases in fruit and vegetable farming, consumer gardening and the adoption of vertical farming.

In the United States and Canada, regulatory oversight and statutory requirements for growers and their products enhance product safety and transparency to consumers, and usually necessitate the use of CEA in cannabis cultivation in order to meet mandated tetrahydrocannabinol (THC) content or impurity tolerances.

5 unchanged sentences

Broad Portfolio with Innovative Proprietary Offerings and Recurring Consumables Sales

We have a large equipment and consumable product offering, including lighting solutions, growing media, nutrients, equipment and supplies.

We have a large equipment and consumable product offering, including lighting solutions, grow media, nutrients, equipment and supplies.

We offer everything growers need to ensure their operations are maximizing efficiency, output and quality.

We maintain an extensive portfolio of products which includes approximately 35 internally developed or acquired proprietary brands across thousands of stock keeping units ("SKUs") as well as over 45 preferred brands.

Approximately 75% of our sales relates to proprietary and preferred brands, which generally provide for higher gross profit margins compared to distributed brands and a competitive advantage as we offer products that cannot be purchased elsewhere.

We believe that approximately three-quarters of our net sales are generated from consumable products subject to recurring revenue that includes growing media, nutrients and supplies.

We maintain an extensive portfolio of products which includes approximately 35 proprietary brands across thousands of stock keeping units ("SKUs") as well as over 50 preferred brands.

Fifty-six percent of our 2024 revenue relates to sales of our proprietary brands, which generally provide for higher gross profit margins compared to preferred and distributed brands and a competitive advantage as we offer products that cannot be purchased elsewhere.

We estimate that approximately three-quarters of our net sales are generated from consumable products subject to recurring revenue that includes grow media, nutrients and supplies.

We sell proprietary and preferred brands across all of our product categories.

In 2021, we completed five acquisitions of branded manufacturers of soil, grow media, plant nutrients, and horticultural benches, racks and grow lights:

(i) Heavy 16, (ii) House & Garden, (iii) Aurora Innovations, (iv) Greenstar Plant Products, and (v) Innovative Growers Equipment.

We selectively add distributed products when the brand or technology provides us with a more comprehensive assortment to satisfy our customers' needs.

In the fourth quarter of 2022, in connection with our restructuring plans, we strategically identified products and brands to exit from our portfolio, enabling us to better focus on higher value proprietary products and solutions for our customers.

Manufacturing Capabilities

We currently operate six manufacturing facilities in North America which include organic certified and synthetic liquid and dry nutrient blending and bottling, organic certified soil blending and bagging, perlite production, injection molding capabilities, custom and off the shelf horticulture benches and racking system fabrication, automated LED light manufacturing (LED surface mounting and light fixture assembly), and peat harvesting and baling.

We currently operate three manufacturing facilities in North America which include organic certified and synthetic liquid and dry nutrient blending and bottling, organic certified soil blending and bagging, perlite production, and peat harvesting and baling.

Our peat harvesting operation provides useful products for improving grow media and organic farming.

7 unchanged sentences

We serve over 2,000 wholesale customer accounts across multiple channels in North America, providing customers with the capability to purchase their entire product range from us.

To better serve our customers, we reorganized our commercial sales team to drive a solution based approach, focusing on added competencies and product assortment gained from our 2021 acquisitions.

Our DMI programs offer consultation, technical expertise, facilitated order fulfillment and JIT delivery of products.

We leverage a seasoned sales team and our internal product category experts to provide industry insights, product capabilities and customer support.

3 unchanged sentences

households participate in lawn and gardening activities today.

To that end, we have reorganized our sales efforts to focus on the CEA food and floral market, and the consumer gardening markets, where we are well suited to expand our business.

Our sales team is organized to focus on the CEA food and floral market, and consumer gardening markets, where we are well suited to expand our business.

Productivity and Cost Saving Initiatives

While maintaining our dedication to customer service and on-time delivery, we are focused on reducing costs and improving productivity within the organization.

Our initiatives have included reducing headcount, implementing operational changes, consolidating our facility footprint, and focusing our sales efforts on our proprietary brand offerings.

We are executing on our previously announced restructuring plans to improve efficiency and reduce costs.

Experienced Management Team with Proven Track Record

We have an experienced leadership team that possesses significant public market experience, a history of driving long-term organic growth and a track record of successful business consolidations.

Bill Toler, Chairman and Chief Executive Officer, has over 35 years of executive leadership experience in supply chain and consumer packaged goods, most recently serving as President and Chief Executive Officer of Hostess Brands from April 2014 to March 2018.

John Lindeman, Executive Vice President and Chief Financial Officer, brings us more than 25 years of finance and leadership experience.

Most recently, he served as Chief Financial Officer and Corporate Secretary at Calavo Growers, Inc., a fresh food company, where he was responsible for the finance, accounting, IT and human resource functions.

E ffects of COVID-19 on Our Business

The World Health Organization recognized COVID-19 as a global pandemic on March 11, 2020, and it is now widely expected to become endemic.

COVID-19 has had significant and ongoing negative impacts on global societies, workplaces, economies and health systems.

At various times, authorities throughout the world have implemented measures to contain or mitigate the spread of the virus, including physical distancing, travel bans and restrictions, closure of non-essential businesses, quarantines, work-from-home directives, mask requirements, shelter-in-place orders and vaccination programs, each of which have significantly impacted the ability of many companies to conduct business.

As of the filing of this Annual Report on Form 10-K, our operations are not impacted by any COVID-19 related facility closures, lockdown measures, travel restrictions or similar limitations.

However, new waves of COVID-19 or its variants could cause the reinstatement of such limitations, and such limitations may adversely impact our supply chains, the manufacturing of our own products and our ability to obtain necessary materials, all of which could adversely affect our business, results of operations and financial condition.

We believe that COVID-19 may at times have contributed to some extended lead times in our supply chain, as well as increased shipping costs, and there is no guarantee that it will not impact our operations in the future.

We believe COVID-19 may have provided a positive demand impact for the Company in 2020 and 2021 from shelter-in-place orders in the United States, a possible negative supply chain impact from workforce disruption at international and domestic suppliers, and a possible negative growth rate impact in 2022 and 2023 due to agricultural oversupply initiated during the height of COVID-related shelter-in-place orders in 2020 and 2021.

Management believes that COVID-19 drove a greater volume of sales by our customers in select time periods, thus creating demand for our CEA supplies and equipment.

We continue to monitor the COVID-19 pandemic and will adjust our mitigation strategies as necessary to address changing health, operational or financial risks that may arise.

Our initiatives have included implementing operational changes, consolidating our facility footprint, integrating our business into one operating segment, reducing headcount, and focusing our sales efforts on our proprietary brand offerings.

We have executed on our previously announced restructuring plans to improve efficiency and reduce costs.

Government Regulation

based operations, there is no national regulatory body providing oversight of the Hydrofarm portfolio of products.

A substantial number of our products in our growing media and nutrients product lines are subject to U.S.

based operations, there is no national regulatory body providing oversight of our portfolio of products.

A substantial number of our products in our grow media and nutrients product lines are subject to U.S.

state specific registration requirements.

Organic listed products are audited by the California Department of Food and Agriculture and/or the Organic Materials Review Institute.

Organic listed products are audited in the US by the California Department of Food and Agriculture and/or the Organic Materials Review Institute.

Finished goods and ingredients labeled as pesticides are regulated by federal and state offices of the Environmental Protection Agency (the "EPA").

Canadian based operations and product lines are regulated under the Canadian Food Inspection Agency.

Organic certified products are attested by EcoCert.

Canadian based operations and product lines are regulated under the Canadian Food Inspection Agency and some organic certified products are audited and attested to by EcoCert and/or the Organic Materials Review Institute.

Our peat harvesting operations are regulated by provincial and municipal bodies, including Alberta Environment and Parks regulations.

29 unchanged sentences

Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require the end users of certain of our products or us to incur substantial costs associated with compliance or to alter our respective business plans.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operation and financial condition.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations and financial condition.

The public’s perception of cannabis may significantly impact the cannabis industry’s success.

1 unchanged sentence

The cannabis industry is an early-stage business that is constantly evolving with no guarantee of viability.

The market for medical and adult use of cannabis is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion (whether or not accurate or with merit) relating to the consumption of cannabis, whether in the United States or internationally, may have a material adverse effect on our operational results, consumer base, and financial results.

The market for medical and adult use of cannabis is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion (whether or not

accurate or with merit) relating to the consumption of cannabis, whether in the United States or internationally, may have a material adverse effect on our operational results, consumer base, and financial results.

Among other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize medical or adult cannabis or adopt new laws or regulations restricting or prohibiting the medical or adult use of cannabis where it is now legal, thereby limiting the potential customers and end-users of our products who are engaged in the cannabis industry (collectively "Cannabis Industry Participants").

14 unchanged sentences

Therefore, strict enforcement of federal law regarding cannabis would likely adversely affect our revenues and results of operations.

Other laws that directly impact the cannabis growers that are end users of certain of our products include:

Other laws that directly impact Cannabis Industry Participants include:

• Businesses trafficking in cannabis may not take tax deductions for costs beyond costs of goods sold under Internal Revenue Code Section 280E.

There is no way to predict how the federal government may treat cannabis businesses from a taxation standpoint in the future, and no assurance can be given to what extent Internal Revenue Code Section 280E, or other tax-related laws and regulations, may be applied to cannabis businesses in the future.

• Because the manufacturing (cultivation), sale, possession and use of cannabis is illegal under federal law, cannabis businesses may have restricted intellectual property and proprietary rights, particularly with respect to obtaining and enforcing patents and trademarks.

Though we are not directly affected by Internal Revenue Code Section 280E, as we are not a cannabis business, modifications or a repeal could provide a favorable impact to end users of our products.

• Because the manufacturing (cultivation), sale, possession and use of cannabis is illegal under federal law, cannabis businesses may have restricted intellectual property rights, particularly with respect to obtaining and enforcing patents and trademarks.

Our inability to register, or maintain, our trademarks or file for or enforce patents on any of our inventions could materially affect our ability to protect our name, brand and proprietary technologies.

In addition, cannabis businesses may face court action by third parties under the Racketeer Influenced and Corrupt Organizations Act ("RICO").

Our intellectual property and proprietary rights could be impaired as a result of our retailers’ and resellers’ involvement with cannabis business, and we could be named as a defendant in an action asserting a RICO violation.

• Similar to the risks relating to intellectual property and proprietary rights, there is an argument that the federal bankruptcy courts cannot provide relief for parties who engage in cannabis.

Our intellectual property rights could be impaired as a result of our retailers’ and resellers’ involvement with cannabis business, and we could be named as a defendant in an action asserting a RICO violation.

• Similar to the risks relating to intellectual property rights, there is an argument that the federal bankruptcy courts cannot provide relief for parties who engage in the cannabis business.

Recent bankruptcy rulings have denied bankruptcies for cannabis dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets as such action would violate the CSA.

13 unchanged sentences

Department of Justice (the "DOJ") under the Obama administration issued a memorandum (the "Cole Memorandum"), characterizing strict enforcement as an inefficient use of federal investigative and prosecutorial resources.

distribution, cannabis cultivation on federal property, and collection of cannabis-derived revenue by criminal enterprises, gangs and cartels.

The Cole Memorandum provided guidance to all federal prosecutors and indicated that federal enforcement of the CSA against cannabis-related conduct should be focused on specific priorities, including cannabis distribution to minors, violence in connection with cannabis distribution, cannabis cultivation on federal property, and collection of cannabis-derived revenue by criminal enterprises, gangs and cartels.

• On January 4, 2018, the DOJ under the Trump administration issued a memorandum (the "Sessions Memorandum"), which effectively rescinded the Cole Memorandum and directed federal prosecutors to enforce the CSA and to follow well-established principles when pursuing prosecutions related to cannabis activities.

The DOJ under the Biden administration has not readopted the Cole Memorandum, but President Biden has indicated support for decriminalization of cannabis.

• On October 6, 2022, President Biden issued an executive order pardoning all persons convicted of simple possession of cannabis under the CSA.

In the same executive order, President Biden also directed the Secretary of Health and Human Services and the Attorney General to initiate an administrative process to review the scheduling of cannabis under the CSA, and on August 29, 2023, the Department of Health and Human Services officially recommended that the DEA reschedule cannabis from Schedule I to Schedule III, although the DEA is not obligated to follow this recommendation.

• On December 2, 2022, President Biden signed into law the Medical Marijuana and Cannabidiol Research Expansion Act, which streamlines and expands the process for researching the medical use of cannabis.

Currently in the United States, 38 states have adopted frameworks that authorize and regulate cannabis cultivation and sale for medical use, while 24 states legalized cannabis for medical and recreational use.

The DOJ under the Biden administration did not readopt the Cole Memorandum, but former President Biden indicated support for decriminalization of cannabis.

• On October 6, 2022, former President Biden issued an executive order pardoning all persons convicted of simple possession of cannabis under the CSA.

In the same executive order, former President Biden also directed the Secretary of Health and Human Services ("HHS") and the Attorney General to initiate an administrative process to review the scheduling of cannabis under the CSA, and on August 29, 2023, the Department of HHS officially recommended that the Drug Enforcement Administration (the "DEA") reschedule cannabis from Schedule I to Schedule III, although the DEA is not obligated to follow this recommendation.

On January 12, 2024, HHS publicly released its scientific review supporting the Schedule III recommendation.

This 250-page document cites peer-reviewed studies and widespread medical use under state programs, providing a robust foundation for the proposed change and increasing transparency in the process.

• On December 2, 2022, former President Biden signed into law the Medical Marijuana and Cannabidiol Research Expansion Act, which streamlines and expands the process for researching the medical use of cannabis.

• On April 30, 2024, the DEA announced its intent to propose a rule to reschedule cannabis to Schedule III, following the Associated Press reporting the agency’s plans.

This marked the DEA’s first public acknowledgment of moving away from its long-held stance that cannabis lacks therapeutic value.

On May 16, 2024, the DOJ, led by former Attorney General Merrick Garland, submitted a Notice of Proposed Rulemaking ("NPRM") to the Federal Register.

Published on May 21, 2024, the NPRM formally initiated the rulemaking process to transfer cannabis to Schedule III, opening a 60-day public comment period, which ended July 22, 2024.

The DEA received over 42,000 comments, with strong public support for rescheduling.

On August 28, 2024, the DEA scheduled a public hearing on the proposed rescheduling for December 2, 2024, to be held at DEA Headquarters in Arlington, Virginia.

This notice, published in the Federal Register, allowed stakeholders and experts to participate, fulfilling the CSA’s requirement for a formal hearing process if requested.

Requests to participate were due by September 30, 2024.

The DEA held the preliminary hearing on the proposed rescheduling of cannabis on December 2, 2024.

Currently in the United States, 41 states and the District of Columbia, have adopted frameworks that authorize and regulate cannabis cultivation and sale for medical use, while 24 states and the District of Columbia legalized cannabis for medical and recreational use.

It is estimated that over half of the United States population resides in a state where cannabis is currently legal for medical and recreational use.

18 unchanged sentences

federal prosecutors relating to the prosecution of U.S.

money laundering offenses predicated on cannabis violations of the CSA and outlines extensive due diligence and reporting

requirements.

money laundering offenses predicated on cannabis violations of the CSA and outlines extensive due diligence and reporting requirements.

The FinCEN Memo currently remains in place, but it is unclear at this time whether current or future administrations will continue to follow the guidelines of the FinCEN Memo.

5 unchanged sentences

In September 2023, the Secure and Fair Enforcement Regulation Banking Act ("SAFER Banking Act") passed the U.S.

Senate Banking Committee.

Senate Banking Committee which expands on the financial institutions granted protection than those proposed to be covered by the SAFE Banking Act, provides uniform exam guidelines for cannabis banking institutions, among other changes.

However, passage of the SAFER Banking Act in the U.S.

4 unchanged sentences

Such risks include, but are not limited to, the following:

• Cannabis is currently a Schedule I drug under the CSA and regulated by the Drug Enforcement Administration (the "DEA") as an illegal substance.

• Cannabis is currently a Schedule I drug under the CSA and regulated by the DEA as an illegal substance.

The Food and Drug Administration ("FDA"), in conjunction with the DEA, licenses cannabis research and drugs containing active ingredients derived from cannabis.

13 unchanged sentences

The Credit Facilities prohibit us and the Subsidiary Obligors from selling our products, inventory or services directly to cannabis growers operating in any country that prohibits the sale and use of cannabis products other than in accordance with the applicable laws of such country.

As a result, the Company does not sell our products, inventory or services directly to cannabis growers operating in any country that prohibits the sale and use of cannabis products

other than in accordance with the applicable laws of such country.

As a result, the Company does not sell our products, inventory or services directly to cannabis growers operating in any country that prohibits the sale and use of cannabis products other than in accordance with the applicable laws of such country.

See "Risk Factors— Risks Relating to our Indebtedness" for further detail.

10 unchanged sentences

We have not sought to register every one of our trademarks either in the United States or in every country in which such mark is used.

Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents we hold.

Litigation may be necessary to enforce our intellectual property and proprietary rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe, misappropriate or otherwise violate their intellectual property or proprietary rights.

Furthermore, because of the differences in foreign trademark, patent and other intellectual property rights laws, we may not receive the same protection in other countries as we would in the United States with respect to the registered brand names and issued patents we hold.

Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or services infringe, misappropriate or otherwise violate their intellectual property.

Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources.

We may need to obtain licenses to patents and other intellectual property and proprietary rights held by third parties to develop, manufacture and market our products, if, for example, we should wish to develop products that incorporate or otherwise include, third-party patented technology.

We may need to obtain licenses to patents and other intellectual property rights held by third parties to develop, manufacture and market our products, if, for example, we should wish to develop products that incorporate or otherwise include, third-party patented technology.

If we are unable to timely obtain these licenses on commercially reasonable terms (or at all) and maintain these licenses, our ability to commercially market our products, may be inhibited or prevented.

In addition, because the manufacturing (cultivation), harvesting, processing, distribution, sale, possession and use of cannabis is illegal under federal law, companies that transact with cannabis businesses may have restricted intellectual property and proprietary rights particularly with respect to obtaining and enforcing patents and trademarks.

In addition, because the manufacturing (cultivation), harvesting, processing, distribution, sale, possession and use of cannabis is illegal under U.S.

federal law, companies that transact with cannabis businesses may have restricted intellectual property rights particularly with respect to obtaining and enforcing patents and trademarks.

We do not believe these restrictions apply to our business.

However, if we are restricted in our ability to register, or maintain, our trademarks or to file for or enforce patents on any of our inventions, such an inability could materially affect our ability to protect our name, brand and proprietary technologies.

See "— Risks Relating to Our Intellectual Property" for more information on the risks associated with intellectual and proprietary rights.

See "— Risks Relating to Our Intellectual Property" for more information on the risks associated with intellectual rights.

Human Capital

Our success depends on management implementing effective human resource initiatives in order to recruit, develop and retain key employees.

At Hydrofarm we believe that having a strong support base will allow for greater productivity and satisfaction and we are committed to open and healthy communication with our workforce.

At Hydrofarm we believe that having a strong support base will allow for greater productivity and

satisfaction and we are committed to open and healthy communication with our workforce.

We seek to create an inclusive work environment in order to foster an innovative and team-oriented culture.

As of December 31, 2023, we had 369 full time employees globally, as compared to 498 full time employees as of December 31, 2022.

Of this amount, approximately 69% are located in the United States, and the remainder primarily in Canada.

During 2023, we reduced headcount and we may implement further reductions in the future to create operational efficiencies.

As of December 31, 2024, we had 286 total employees globally, of which 285 are full-time employees, as compared to 369 total employees as of December 31, 2023.

Of our total employees, approximately 66% are located in the United States, and the remainder primarily in Canada.

During 2024 and 2023, we reduced headcount and we may implement further reductions in the future to create operational efficiencies.

Additionally, we use temporary workers as needed to provide flexibility for our business including for seasonal projects.

21 unchanged sentences

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are filed with the SEC.

Such reports and other information filed by us with the SEC are available free of charge on our website at investors.hydrofarm.com when such reports are available on the SEC’s website.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business