Financially strapped MedMen Enterprises is showing modest improvement, raising the possibility that the California-based multistate marijuana operator has hit bottom and is beginning to benefit from its restructuring and turnaround plan.
But huge challenges remain, including a high debt load, ongoing losses and a small cash cushion.
In another sign of financial distress and a red flag for investors, MedMen’s liabilities greatly exceed its assets – a situation known as negative stockholders’ equity.
The good news: MedMen’s sales hit $35.6 million in the company’s fiscal 2021 first quarter ended Sept. 26, up from $27.4 million in the previous quarter.
Gross margins also increased and expenses declined in part because of cost control and workforce cuts over the past year or so.
Net losses totaled $32.8 million, but that was down sharply from an $87.4 million loss during the same period of 2019.
MedMen’s interim CEO called the results “transformational.”
But analysts remain cautious.
“Despite the improvement, (MedMen’s) cost structure is still bloated and a heavy debt burden may force management to seek dilutive solutions,” New York investment firm Cowen wrote in a research note.
Pablo Zuanic, a research analyst for Cantor Fitzgerald in New York, had a similar take.
“MedMen sales bounced back in the September quarter,” Zuanic wrote. But the company’s debt load is high, and the “risk of further dilution remains high.”
Embattled co-founder Adam Bierman stepped down as MedMen’s CEO in late January and surrendered his voting control.
Less than two months later, MedMen retained a management advisory firm to help it restructure.
Under a new leadership team, MedMen recently took a $235.9 million impairment charge. The company attributed that charge primarily to a decline in the value of its assets in California, Florida and Nevada.
That, and ongoing losses, have resulted in a negative shareholder equity of $192.3 million for the quarter ended Sept. 26.
Like other companies in similarly poor financial shape, MedMen has included the obligatory boilerplate language in its public filings with securities regulators about the “substantial doubt” that it will survive more than a year as a going concern.
Published: December 21, 2020