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MedMen: Massive Dilution May Give Gotham Green Control

Summary

MedMen up-sized its GGP convertible debt facility to $285 million.

The terms of that debt may result in GGP owning debt and warrants which convert to 1.4 to 2.6 billion MedMen shares.

GGP could own 66-78% of MedMen while existing shareholders will own only 22-34%.

I do not recommend an investment in MedMen and I will strongly consider selling my holding in the near-term future.

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MedMen has very poor cash flow

Source: The Growth Operation Cannabis Company Dashboard, based on company filings.

Summary

MedMen (OTCQB:MMNFF) is a slickly-marketed but poorly-run cannabis company. Now under new leadership, they are trying to turn things around but are hamstrung by high debt and high operating costs.

Desperate for capital, MedMen has renegotiated and expanded its convertible debt agreement with Gotham Green Partners (“GGP”). With these amendments, MedMen up-sized the facility to $285 million and received $12.5 million through another tranche of convertible debt.

Unfortunately, the amended terms are very favorable to GGP and unfavorable for investors. As amended, GGP’s pre-existing convertible debt and warrants will be converted to strike prices between $0.20-0.40/share. If MedMen uses its full $285 million facility, GGP will own convertible debt and warrants which can be exchanged for 1.4-2.6 billion MedMen shares. This will heavily dilute existing MedMen shareholders, who will own only 22-34% of the company.

MedMen’s management will have their hands full trying to turn this money-losing company around. Even if they succeed, investors may see limited upside due to the extreme dilution resulting from MedMen’s deal with GGP.

Poor Management

MedMen is a slickly-marketed cannabis company with busy stores. Their stores generate more revenue per store than average, partly due to a good brand name and due to leasing marquee locations.

To Read The Rest Of This Article By Jonathan Cooper on Seeking Alpha

Published: March 31, 2020

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