MedMen Enterprises: The ‘WeWork’ Of Cannabis?

MedMen-Internet-Bull-Report

The fall from grace of one of the most well known cannabis retailers may be a sign to come for the industry.

Once touted as the ‘Apple of Weed’, MedMen have suffered a spectacular fall of grace underpinned by their lavish spending, excess security and cannabis’ flimsy legal status. This is the rise and fall of MedMen, and why it represents the issues with the US legal cannabis industry.

“More style, less stigma,” CNBC’s Marcus Lemonis described when touring MedMen West Hollywood in August, equipped with sleek, consumer-friendly table displays promoting transparency: iPads with a library of information and clear-packaged marijuana samples, allowing you to inspect your weed through a magnifying glass and smell it via a sliding compartment. This setup — clean and mod — has been compared to the Apple Store.

MedMen is the best-known cannabis retailer in the United States.

Yet, in what could be a warning for the American marijuana industry, it is racing to raise cash to cover its mounting losses.

Its struggles show the challenge cannabis companies face in operating in states where high taxes and dispensary restrictions have driven up prices for legal marijuana. In California, MedMen’s core market, highly regulated companies are struggling to compete for customers with illicit dealers who charge far less.

And, this definitely does not resonate well with a company in its state, sitting on Short Term Liabilities worth almost 2x its Current Assets.

One of the earliest cannabis unicorns in the US, today stands at an Equity Value of $-222M, with Wicklow Capital (its largest institutional shareholder) and Parallax Volatility Advisers (3rd largest), having recently reduced their shareholding by a staggering 13.88% and 55.02% respectively.

The company’s troubles are a symptom of the broader industry’s issues. Many different companies and investors have been jockeying to take control of the nascent industry, or at least to grab a significant portion of the billions at stake if and when cannabis is legalized nationally. But even some of the largest operators have found themselves retrenching recently; those that moved most aggressively to expand, like MedMen, have been hit particularly hard.

MedMen’s aggressive efforts to rein in costs and attempt to get the business on solid footing have included cutting hundreds of jobs, selling off stores, reworking financing arrangements, and negotiating payment terms with the companies whose products line the shelves of MedMen stores in states such as California, Nevada and New York.

MedMen was a company that was run like a tech startup from the get-go, in an industry that doesn’t have the stability or the cash to support the lavish lifestyle Bierman and Modlin chose to lead. MedMen still exists as an entity, but market experts believe it will be a case of selling whatever assets are left to whichever investors they can find.

The legality of cannabis in the US has a number of implications for startup businesses. The entire industry is on tenterhooks – varying laws, inability to access financial institutions, corruption and concerns of foreign money flooding the market don’t make for a stable industry.

Being listed on a foreign exchange market has meant companies have access to fewer US investors, a trend seen within most cannabis startups. US investors aren’t as likely to engage in a foreign market they are unfamiliar with, so it’s difficult to secure investment within the country. In addition to having difficulty sourcing local backers, most US banks will not supply traditional business loans due to federal illegality concerns.

As the young cannabis industry continues to grow, MedMen should be viewed as a cautionary tale. It is unlikely we have seen the last cannabis company collapse, but rather, we are seeing just how unstable the market can be. As legislation continues to change in the coming years, the industry should find its feet and manage steady growth into the future.

All of this finally brings us on to the question: do we have another WeWork among us ? Probably; Only time will tell.

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