MedMen Hopes Divestments, New Capital Will Help Improve Profitability

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Los Angeles-based MedMen Enterprises will continue its cost-cutting efforts in the new year as it moves to sell three medical marijuana licenses in Arizona and one cultivation and manufacturing license in Illinois, the company recently shared.

In a press release, MedMen said it had non-binding agreements to sell its holdings in Arizona to an undisclosed acquirer. The company added that it had executed a binding term sheet for the sale of its “non-core” assets in Illinois. The two transactions are expected to generate a combined $54 million as MedMen, a high-profile multi-state cannabis retailer that recently announced drastic cutbacks and nearly 200 layoffs, works to improve its financial position in fiscal year 2020.

MedMen acquired the three Arizona licenses in late 2018 via the acquisitions of WhiteStar Solutions LLC (Monarch) as well as Kannaboost Technology Inc. and CSI Solutions LLC (Level Up).

The company’s exit from Arizona comes at a time when statewide medical dispensary sales increased more than 20% year-to-date (YTD) through the first 11 months of 2019, according to BDS Analytics. The Colorado-based firm, which tracks cannabis spending across a variety of markets, pegged YTD medical marijuana sales in the Grand Canyon State at $651 million through November of last year.

The move also sparked concern that an initiative to legalize adult-use sales -- called the Smart and Safe Arizona Act -- could lose steam since MedMen was a top contributor to the campaign, according to Phoenix New Times

In a late December press release, MedMen also said it would raise $20 million from the sale of 46.9 million class B shares (at $0.43 each) to a “new strategic investor and an existing investor, Wicklow Capital.” According to the cannabis firm, proceeds raised from the equity placement could be used to “finance working capital requirements” and to help it expand in “core geographic markets.”

MedMen has added that it would continue to evaluate opportunities to divest other “non-core assets” as it turns its focus toward growing profits in California, Nevada, Florida, Illinois, Massachusetts and New York.

The decision to unload assets and issue new shares also comes about two months after MedMen terminated plans to acquire Chicago's PharmaCann for $682 million.

Meanwhile, MedMen's stock (MMNFF) has lost more than 80% of its value since the beginning of last year. As of press time, MMNFF stock was trading at 0.52 per share.

Nevertheless, Cowen's equity research team, led by analyst Vivien Azer, recently upgraded MedMen to market perform status (from underperform) saying that the company is “well positioned to compete in the U.S. cannabis market.”

“We believe management is rightly heeding to the necessary austerity provisions,” Azer wrote in a December report.

Last month, MedMen co-founder Andrew Modlin agreed to delegate his voting shares to Ben Rose, the chairman of the cannabis company’s board and chief investment officer at Wicklow.

“We view this step as a clear message to investors that the operating decisions moving forward will be more prudently assessed through a financial lens,” Azer added.

Founded in 2010, MedMen has 27 active dispensaries across six states, including 12 in California, according to Cowen.

In a press release, MedMen co-founder Adam Bierman said the company’s focus in 2020 is aimed at “maximizing our core assets while also reducing our corporate expenses to achieve positive EBITDA.”

“The asset sales, cost reductions and additional financing will provide MedMen with greater flexibility to execute on its strategy and retain its leadership position in key markets,” Rose said last month.

The company expects to generate upwards of $245 million in revenue from 36 stores in fiscal year 2020, with the bulk of that business coming from California ($140 -- $148 million).

Looking ahead to fiscal year 2021, MedMen estimates revenue from 54 stores to approach $500 million.


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