Eyeing Profitability, MedMen Slashes 190 Jobs
In a drastic attempt to lower costs and boost profitability, embattled multi-state marijuana company MedMen will lay off 190 employees and sell its stake in a cannabis real estate investment trust (REIT), among other right-sizing maneuvers.
In a press release, MedMen co-founder and CEO Adam Bierman said the company’s five-prong restructuring effort -- which includes license divestments and fewer dispensary openings – is aimed at achieving positive earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2020.
“We have a clear plan to increase our market share, while at the same time enhancing our margins and reducing our corporate overhead,” Bierman said via the release. “We must unlock our operating leverage and bring the Company to positive EBITDA. Given market conditions, capital allocation is more critical than ever.”
As a result of the cutbacks, the company said it expects to save $85 million by the end of the fiscal third quarter 2020.
The workforce reduction alone, which will impact 20% of MedMen’s corporate employees, is expected to save the company $10 million annually.
“This layoff includes many hard working, mission-based people whose presence will be sorely missed,” Bierman said in the release. “While it is never easy to let employees go from the MedMen Family, we believe this decision is in the best interest of our company as we position ourselves for growth in the years ahead.”
Approximately 15% of MedMen’s 1,300 employees will be impacted by the layoffs, according to investment firm Cowen and Company.
Nevertheless, even as MedMen cuts nearly 200 positions and eliminates redundancies across the organization, the company said it would “continue investing in its employees.”
In doing so, MedMen is working on a new bonus program that is “share-based” and incentivizes employees to help the company meet its EBITDA targets.
The right-sizing effort also includes a new dispensary strategy that prioritizes recreational market opportunities in population-dense regions. The company said it would delay investments in medical marijuana markets, including New York and Arizona, and limit openings to core markets where it can generate more than $10 million in revenue within the first year of operations.
MedMen said it would also reduce marketing and technology budgets, postpone various retail store expansions and scale back its acquisition efforts. Additionally, the company plans to ramp up its private label and co-manufacturing business in Nevada and California, where it operates cultivation and production facilities.
“The company expects to enter calendar 2020 as a leaner and more flexible organization to execute on its mission, while still building on its leadership position in the industry and its many accomplishments,” the release noted.
Although revenues grew 227% to $130 million during fiscal 2019, MedMen recorded adjusted EBITDA losses of $173 million.
According to Cowen and Company’s Vivien Azer, MedMen spent $361 million in free cash flow in fiscal 2019, and company-wide losses have “created a dependency on the increasingly stringent capital markets.”
In a note to investors, Azer said MedMen could struggle to execute the 90-day plan in the face of ongoing challenges.
“While necessary, the pace of change could make achieving these goals on time and on target challenging, given the notable amount of senior leadership turnover that has already occurred at the organization,” Azer wrote.
Indeed, MedMen terminated chief financial officer Michael Kramer last month. Meanwhile, former CFO James Parker resigned last November, and sued the company in January.
Former MedMen senior vice president of business development Kellen O’Keefe also left for Toronto-based Flower One Holdings in July. And Alfred Miranda, MedMen’s former senior vice president of technology, left MedMen in May for a position as the chief information officer at Acreage Holdings.
Those departures followed the April exit of three notable senior officials -- chief operating officer Ben Cook, general counsel Lisa Sergi and senior vice president of corporate communication Daniel Yi.
“The magnitude of the change, for an organization that has experienced an unusually high amount of turnover in senior leadership, will present challenges from an execution standpoint,” Azer wrote.
Founded in 2010, MedMen is a vertically-integrated cannabis company that is licensed to operate 70 retail stores and currently has a presence in nine states.