Demanding capital markets are keeping cannabis CEOs on their toes as they try to navigate the growth of a soon to be $1 trillion industry…
When it comes to management decisions, I don’t often like to see 180 degree turns.
Big changes are disruptive, and disruption is expensive.
It can lead to lost sales, lost talent, and lost confidence.
It can also be necessary. As Mike Tyson said, “everyone has a plan until they get punched in the face.” And when a company is trying to carve out market share in the highest growth industry to emerge in generations, it can expect a lot of punches.
Things don’t always go as planned. And when conditions change, management should be willing to adapt.
But when things rarely work out, you have to wonder about management’s competency.
For a good example of this, you need look no further than MedMen Enterprises Inc. (CSE: MMEN, OTC: MMNFF). The company has made a lot of management changes over the last few months. The stock has performed poorly from the start, so I understand Adam Bierman’s desire to make big changes.
Last week, it terminated its Chief Financial Officer Michael Kramer. But that wasn’t the biggest change.
The Face of Madness
In addition to terminating its CFO, MedMen also cancelled its deal to acquire PharmaCann for CA$682 million in stock.
The two companies have been working on this deal for over a year.
A lot of time and money went into preparing for the merger. The hardest part cleared a lengthy, expensive, and painful anti-trust investigation – allowing the merger to move forward.
One could argue that cancelling after all that work with no warning makes management seem impulsive.
This about face represents a major strategy change – MedMen was planning to be nationwide as quickly as possible to build the brand. Now it’s going to be “deeper” in fewer states to build share. MedMen hasn’t talked about that before the deal’s cancellation.
The new strategy abandons plans in several states which are currently recreational-use or will likely go next year – Massachusetts and Michigan. It also abandons Maryland, Pennsylvania, and perhaps even Ohio – states that have a pretty reasonable chance of going recreational in the next year or so.
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Undoing all of that hard work and strategy in one fell swoop seems like madness. But maybe they are crazy like a fox.
Necessity Drives Genius
Going deeper into a few states rather than wider across all is the better strategy. Penetrating fewer markets more deeply allows economies of scale, which are hard to come by in an industry which can’t ship across state lines.
As a part of the terms of cancelling the deal, MedMen keeps PharmaCann’s Illinois assets, which is going recreational on January 1, 2020.
It also doesn’t have to dispose of duplicative license in New York at low point of market- which is yet another win.
Finally, cancelling the deal prevents overinvestment in Virginia and Ohio – states which are unlikely to go recreational anytime soon. And even though losing recreationally legal Massachusetts seems like a loss, the truth is that the state is too slow in allowing recreational dispensaries.
Ultimately, this move conserves capital in a tough market. And the company has plenty to work on in any case.
Through other acquisitions, MedMen has added Arizona and Florida, both very robust medical markets. And their licenses in California, Nevada, and New York provide plenty of growth over the near term.
Capital markets are tough on cannabis stocks right now. So maybe this latest move by MedMen is a stroke of genius.
Executive Director, National Institute for Cannabis Investors
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5 responses to “What to Make of MedMen’s Latest Move”
October 15 2019