MedMen Enterprises Results Show the Sunny Side of Cannabis

MedMen Enterprises Inc. (CSE:MMEN), one of the U.S. marijuana stocks, saw its Q2 revenue climb as a result of its California retail sales

SmallCapPower | March 1, 2019: MedMen Enterprises Inc. (CSE:MMEN), one of the U.S. cannabis stocks, after Wednesday’s close reported a 39.5% sequential surge in revenue to $29.9 million for the second quarter ended December 2018. Revenue growth was due to strong retail performance in the Company’s retail stores in California (~$23.7 million, up 28% QoQ), and opening of three new retail locations in Nevada and Arizona, offset by relocation of one retail license located in Nevada. MedMen operates 16 retail locations in four states, compared to 14 retail locations in the previous quarter, and five retail locations in Q2 2018.

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Overall Gross Margins expanded to 53% as compared to 45% in Q1 2019, underpinned by unrealized gain on changes in fair value of biological assets ($2.8 million). However, Gross Margins before fair value adjustments contracted to 44% (vs. 54% in Q1 2019) as cost of goods sold jumped 69.5% on higher payroll and rent expenses related to the Project Mustang and cultivation-related adjustments.

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Total expenses rose 6.5% sequentially to $77.7 million on the back of a 79.2% increase in sales & marketing expenses, in relation to growth in retail locations and amplified promotion/advertising budgets. Adjusted EBITDA loss improved to $43.9 million in Q2 2019, versus a loss of $47.4 million in Q1 2019, on the back of higher depreciation expenses.

Net loss for the quarter narrowed to $64.6 million, compared to loss of $66.5 million in Q1 2019. Cash & equivalents and total assets stood at $78.2 million and $466.5 million, respectively, on December 29, 2018.

MedMen has sought to focus on increasing its retail footprint across the U.S., with 16 new retail locations in the pipeline for FY 2019 (12 will be based in Florida). Currently, the Company holds a market share of 7% in California.

MedMen’s Chief Executive Officer and Co-Founder Adam Bierman said, “Our strong second quarter results support MedMen’s commitment to drive strong retail and sales performance, while efficiently scaling the Company and executing on our growth strategy. As we emphasized last quarter, we are in a new phase of growth, one focused on continuing to operationalize our industry-leading retail footprint and increasing our profitability. We are confident in the team we’ve built to drive our success.”

On the operational front, MedMen signed a definitive agreement to acquire PharmaCann in an all-stock transaction. The deal will help the Company to double its geographic footprint to 12 states, covering over 50% of the U.S. population. The Company also signed definitive agreements for the acquisitions of a retail license in Emeryville (closed in Q2 2019) and a micro-business license for retail, distribution, cultivation and manufacturing cannabis onsite in San Jose (closed in Q3 2019). Additionally, MedMen signed a definitive agreement with Captor Capital Corp to acquire the retail operations and license for a store in Santa Ana, California. The Company has also acquired Omaha Management Services (owner of Monarch, a vertically-integrated medical license holder in Scottsdale), strengthening its position in cannabis production and retail market.

MedMen Enterprises currently trades at a market capitalization of C$2.2 billion with a price- to-book multiple of 1.9x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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