MedMen: the "Starbucks of the weed" falls from above


Financial problems for retailer MedMen are a warning to the industry

MEDMAR is the best-known cannabis retailer in the United States. Yet in what could be a warning to the U.S. cannabis industry, she is struggling to raise funds to cover her growing losses. His struggles show the challenge faced by cannabis companies in their operations in states where high taxes and clinic restrictions have driven prices up. In California, the main market of MedMen, highly regulated companies find it difficult to compete with customers with illicit resellers who charge much less.

Financial reports released in February showed that MedMen could run out of money in a few months unless it raised more money. Last week, MedMen eased any immediate financial crisis by obtaining a $ 100 million line of credit from a cannabis-focused investment company. The loan could ultimately be increased to $ 250 million if MedMen's performance improves.

The financing conditions are expensive - MedMen must reimburse it at 6% compared to Libor (London InterBank Offered Rate, a key interest rate used by banks for short-term loans with other banks) and issue warrants but the new money will save the business time. Its shares, which had dropped nearly 60% since October, have risen slightly since the announcement. At current share prices, MedMen is worth about $ 1,6 billion , against a peak of around $ 3 billion last year.

To give themselves more time, MedMen sold certain properties, including dispensaries. But this strategy has limits. MedMen has already sold much of its best real estate, and when it sells assets, the company further increases its costs, as it now has to pay rent to new clinic owners.

Another short-term solution is the loan MedMen announced last week to Gotham Green Partners. To show how tight the finances have become, MedMen can transfer its first year interest into the loan rather than paying cash. Although MedMen described the investment loan as $ 250 million when it announced the transaction, it said in its press release that it could only borrow the final $ 150 million “subject to certain conditions and share price thresholds ”.

Questioned by CNBC, the company said, "Improving MedMen's financial profile and cash flows has been one of our top priorities, and we have already made significant improvements by implementing smarter spending initiatives. … We are committed to being strategic regarding our sales, administration and general expenses [general, administrative and administrative expenses], in particular by implementing new processes and efficiency gains. "

Certain MedMen issues appear to be company specific.

On January 29, James Parker, who was CFO of MedMen until November, sued the company in California state court. Parker alleged that this forced him to leave due to his concerns about the expenses and unprofessional behavior of his two main executives, Adam Bierman and Andrew Modlin.

Prospects for America's largest cannabis company have gone up in smoke amid claims of greed, excess and ego ...

Last Sunday, MedMen Enterprises Inc. MMNFF (CSE: MMEN) has temporarily closed five of its eight clinics in Florida, according to the company's website.

The company has experienced financial setbacks in recent times, operating in states where prices for legal cannabis are skyrocketing due to high taxes and clinic restrictions. Earlier this year, MedMen contacted Gotham Green Partners , which supported it with total funding of $ 147,5 million.

Until recently, MedMen was America's largest marijuana company, and its young founders lived accordingly. There were private jets to Las Vegas, a mansion in the Hollywood hills, and opulent dinners at gourmet restaurants.

Attracted by a buzz of positive publicity and noisy profiles in outlets such as Time magazine and Forbes, investors could not help but pour money into the "Starbucks of the weed", and MedMen did not couldn't stop spending it.

Today, however, MedMen's share price has plummeted amid accusations of greed, excess and unbridled ego. Founder Adam Bierman resigned as CEO, and the company went from industry pioneer status to uplifting narrative, as much of the first profits made during the "green rush" of America went up in smoke.

Leadership changes in the cannabis industry

In addition to MedMen, other companies have seen leadership changes. In early 2019, Bruce Linton, CEO of Canopy Growth, left the company. Later in 2019, CannTrust regulatory scandals led to the termination of its CEO. Hexo CFO Michael Monahan resigned in October. Aurora Cannabis saw leadership changes in the business last year. On January 30, CEO of Sundial Growers also resigned. The sundial has also seen other changes in direction. Unelso Supreme Cannabis has seen its CEO leave.

Leadership changes impact a company's actions. Sudden changes in leadership make investors skeptical of the company's performance. MedMen lost 83,9% of its market value in 2019. Surprisingly, the departure of the CEO of MedMen caused his stock to increase on January 31. The stock gained 9% before closing. In January 2020, the stock has lost 17% since the start of the year. Meanwhile, Sundial lost 60%, while Supreme Cannabis lost 24% YTD. Aurora shares lost 12,5%, while the Canopy Growth stock gained 6,9%. Aphria lost 10,7%, while OrganiGram gained 5,7%. Meanwhile, Hexo fell 21,3% year on year.

MEDMAR will announce its financial results for the third quarter of fiscal 2020 on May 27, 2020.

Tags : BusinessCaliforniaUS