MedMen Enterprises Inc. (CSE:MMEN), one of the U.S. marijuana stocks, still has a high cash burn rate
SmallCapPower | May 30, 2019: MedMen Enterprises Inc. (CSE:MMEN), one of the Canada-listed U.S. cannabis stocks, late Wednesday reported its financial results for Q3 2019 and 9M 2019, ended March 30, 2019. Revenue increased 156% YoY and 22% QoQ to US$36.6 million, driven mainly by the Company’s continued approach to acquiring dispensaries across several states, and adding new active retail locations.
The Company’s system-wide retail revenue increased 16% QoQ to $34.6 million in Q3 2019, attributable to its operations in California, Nevada, New York, Arizona and Illinois. Specifically, the Company’s California retail locations contributed $24.9 million to the retail revenue, up 5% versus the prior quarter.
Here’s some highlights from MedMen’s conference call:
- Pro-forma Revenue of $36.6M, or $57M if the pending Pharmacan acquisition is included
- Gross Margins increased 600bps from 51% to 57%
- Selling, General and Administrative Expenses (SG&A) of $61.2M -> SG&A is 1.7x revenues, which is high
- However, SG&A was reduced by 8.6% from the previous quarter
- New CFO is targeting another ~10% reduction in SG&A for next quarter
- Bierman (CEO) and Modlin (President) salaries are being reduced from $1.5M to $50K, effective August 1, 2019
- CEO cash bonuses, if any, will be within the complete discretion of the Compensation Committee of the Board
- Q3 Cash Burn reduced from Q2 but still high (-$59.2 – Q3) vs (-$74.7 – Q2)
- Pharmancan Acquisition expected to close Q2/F2020
- Planning on opening new stores in Pennsylvania, and Illinois (Illinois just legalized recreational cannabis)
Total expenses ballooned 243% YoY to $73 million in Q3 2019, driven mainly by an increase in headcount and operating costs for its retail stores acquired in the period, which led to an increase in expenses related to general and administrative, sales and marketing and depreciation and amortization. As a result of higher expenses, the Company’s loss from operations widened to $53.4 million in Q3 2019, compared to loss of $15.2 million in Q3 2018.
MedMen Co-Founder and CEO Adam Bierman said, “Over the past nine years, MedMen has built the most valuable retail brand in the cannabis industry by taking advantage of the land grab opportunity and scaling with speed to secure as many flagship assets as possible. We continue to march onward towards profitability. The biggest driver for this phase of the business remains revenue, which continues to increase significantly with new store openings and same store sales growth. Where we are impressively ahead of schedule is in leveraging our scale to create greater operational efficiencies across the organization. Execution keeps improving while corporate SG&A is decreasing.”
MedMen is a cannabis retailer with operations across the U.S. and flagship stores in Los Angeles, Las Vegas and New York. The Company is continuously focused on adding new retail locations and is scheduled to open 15 new stores across the U.S. during 2019. Of which, 12 will be in Florida, where MedMen is licensed for up to 35 locations.
MedMen Enterprises stock currently trades at a market capitalization of C$1.6 billion with a price-to-book multiple of 1.3x.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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