Bottom Line

MedMen Enterprises Inc. (CSE: MMEN; OTCQX: MMNFF) reported another quarter of heavy losses as the California-based cannabis company scrambles to right-size and avoid bankruptcy.

Grizzle was first to lay out the true scale of the problems facing MedMen and warned investors in October that the company was in a debt-fuelled death spiral with very few ways to escape.

This quarter did nothing to change our thesis.

Medmen cut the cash burn down to $56 million from $95 million last quarter and has another $115 million or so they can borrow, but with $11 million of quarterly interest expense against only $22 million of gross profit and negative $30 million of cashflow, it’s only a matter of time before the bill will come due.

MedMen will limp along for another 6-12 months until they max out the borrowing base from Gotham Green and run out of money. It’s possible they cut spending enough to make it to October, but with $77 million of debt due October 1st, that is likely when this sad story finally ends and investors are wiped out. Bondholders will own the company one way or another. 

No matter how bad the losses, MedMen investors should be cutting their losses and moving on. This stock is nothing more than a speculative trading vehicle from now until the company runs out of money.

 

Breaking Down the Quarter

The fiscal Q1 2020 period saw MedMen bring in $44 million in revenue — with $30 million of that amount coming from California operations — up slightly from $42 million in revenue last quarter.

A recurring theme of MedMen burning through more cash than the company is taking in continued in the period ending Sept. 28, however, with a loss of $48.9 million reported. That number is down slightly compared to a loss of $53 million in fiscal Q4 2019.

An adjusted EBITDA loss of $29.6 million was announced for Q1 2020, down from the $39.4 million loss in the previous quarterly report.

MedMen ended the quarter with $42 million in cash on hand but $53 million in accounts payable and a total of $129 million in liabilities.

Commenting on the goal of achieving financial stability for one of the most well known cannabis companies in the United States, CEO Adam Bierman had this to say:

As we right-size our organization and implement a focus on free cash flow generation, our business will become more efficient, allowing us to better serve our stakeholders. Through the execution of these goals, we expect MedMen will be EBITDA positive by the end of calendar year 2020.

Although most of the company’s actions to move towards a positive balance sheet occurred after the quarter’s end, this latest period saw a very slight decline in operating expenses from $68.87 million last quarter to $66.13 million in fiscal Q1.

MedMen is now enacting drastic measures to move further in that direction. Most recently the company announced a plan to let 190 employees go, or about 20% of the total employee count, which is expected to save $10 million annually.

The company also notably cancelled the previously announced PharmaCann acquisition in early October. While that axed deal sees MedMen forgiving $21 million in owed debt, the terms of the termination fee grant the company an additional cultivation facility and retail sale site in Illinois.

MedMen’s positive EBITDA plan additionally includes reducing corporate SG&A, dropping marketing and tech expenses by $20 million going into the new quarter.

On the fundraising front, the company is expecting to bring in a final $10 million tranche from the Gotham Green Partners investment by the end of the month.

MedMen’s stock has lost 88% of its value in the last 10 months, trading at $0.44 a share this morning and down significantly from the high of $3.62 back in January.