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.

But the other shift was so big, I can’t tell if it was madness or genius…

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.

Sincerely,


Greg Miller
Executive Director, National Institute for Cannabis Investors

P.S. The influx of CBD products on the market has created an opportunity like we’ve never seen before. Fact is, in the coming year, analysts believe the CBD market alone could grow more than 15 times faster than the cannabis industry as a whole. And we’ve pinpointed two of these CBD companies that could deliver double-, triple-, even quadruple-digit gains practically overnight. Click here to get the full breakdown.


Comments

5 responses to “What to Make of MedMen’s Latest Move”

  1. What about Supreme with it’s deep lows and founder selling off CA1.6 million in shares. Do we abandoned or will they come back?

  2. Greg,
    I have been trying to find a CBD product that has been tested by the United States Pharmacopeia (USP) for purity and strength. They may not have a standard to test against, so this might be premature, but until that happens how will anyone be able to discern what is legit and what is not?

    The same also goes for Marijuana. Is there any testing being done by reputable labs to assess the properties and potencies of both CBD and Marijuana?

    I’d be interested in your take. There seem to be so many charletens out their selling snake oil (and CBD from Hemp Seeds), that I’m curious where anyone can turn to find out if what they paying for is worth the dollars they are spending.

    I look forward to your response,

    Granville Mount

  3. At what point do we hold versus take our losses and wait for things to start going up? Lots of good news but financial bad news. I’m feeling like Mike Tyson’s opponent!

    What do we do?

  4. Buy honest companies. Medmen is nothing but debt! Bierman has pulled his money. He got his. Medmen will be sold for pennies on the dollar if not BK.

  5. I just left Pharmacann and I can tell you that MedMen badly wanted to close the deal since they would be getting assets worth roughly 800m for 300m worth of their free falling stock. We walked from the deal since our MM shares were locked up for 6 months post close and MedMen is out of money and already in default on their loan with Gotham. The founders have agreed with Gotham to give up their super voting shares for additional funding which should keep them afloat for a few more months before Gotham ultimately takes over control.

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