So far, this year has been very tough for MedMen Enterprises (MMEN) (MMNFF). The company has lost 85.2% of its stock value as of Tuesday. The stock fell in the last two quarters due to allegations of financial irregularities, and the termination of its merger agreement with PharmaCann. However, on Tuesday, the company provided its guidance for fiscal 2020 and 2021, updates on its new financing arrangements, and an improvement in its corporate governance after the market closed. The optimistic guidance and initiatives helped MedMen stock rise. On Thursday, the stock closed the day at 0.71 Canadian dollars—a rise of 24.6% from the previous day’s closing price. We’ll discuss the key takeaways from MedMen’s press release on Tuesday.
MedMen’s new financing agreements
MedMen announced that it will receive an additional $37 million in financing since it reported its first-quarter earnings on November 26. On Monday, the company executed a term sheet, which offered $27 million worth of its subordinate voting shares to Wicklow Capital at $0.43 per share. According to the term sheet, Wicklow Capital should hold these stocks for at least four months from the closing date. MedMen expects to close the deal on December 18.
On November 27, MedMen closed a $10 million senior secured convertible credit facility, which was arranged by Gotham Green Partners. The company plans to utilize the net proceeds from these financing arrangements to meet its working capital requirements and open new stores.
Amended loan facility
On Tuesday, MedMen amended some specific terms of the $78 million senior secured term loan. Stable Road Capital and its affiliates manage the loan. According to the binding term sheet, the maturity date will be extended from October 1, 2020, to January 31, 2022. The company will hike the interest rates from 7.5% per annum, which is payable monthly in cash, to 15.5% per annum. However, only 12% of the interest would be paid monthly in cash. The rest would be added to the principal amount monthly. Also, the amendment would cancel the existing warrants of Stable Road Capital and its affiliates, while reissuing 40,455,729 warrants at an excise price of $0.60 per share.
Initiatives to reduce corporate SG&A
In December 2018, MedMen’s annualized corporate SG&A cost was $154 million. On November 15, the company announced that it was $85 million by the end of the third quarter of fiscal 2020. On Wednesday, the company announced that it lowered its SG&A expenses target to an annualized rate of $65 million. The company expects lower headcounts and other cost reduction initiatives to cut its corporate SG&A expenses. MedMen announced that it gave layoff notices to 20% of its corporate employees earlier this week. In the past month, the company has lowered its corporate headcount by 40%. The company expects to save $20 million per annum from these layoffs.
Management’s revenue guidance
MedMen’s management expects to report revenues of $225 million–$245 million in fiscal 2020 and $450 million–$500 million in fiscal 2021. They expect the company to operate 36 stores by the end of fiscal 2020 and 54 stores by the end of fiscal 2021. MedMen owns licenses to operate 70 stores. However, the company only operated 33 stores at the end of the last quarter. Management also expects the company to report positive EBITDA by the first quarter of fiscal 2021. They forecast the company’s cash flows to turn positive by the third quarter of fiscal 2021.
Analysts expect MedMen’s revenues to rise 63.7% in fiscal 2020 to $212.7 million. For fiscal 2021, they expect the company to report revenues of $328.3 million, which is 54.4% growth YoY. For analysts’ recommendations, read MedMen: Price Targets and Ratings after Q1 Earnings.
Improved corporate governance
MedMen also announced that its co-founder, Andrew Modlin, appointed Chairman Ben Rose as a limited proxy for his 815,295 Class A super-voting shares for one year. The shares represent 50% of the total Class A shares.
How has MedMen performed compared to its peers?
MedMen has underperformed its peers and the broader equity market this year. MedMen has fallen 81.6% YTD. Meanwhile, Curaleaf Holdings (CURLF) (CURA), Cresco Labs (CRLBF) (CL), and OrganiGram Holdings (OGI) have returned 22%, -9.2%, and -30.6%, respectively. Curaleaf is one of few cannabis companies that has reported positive returns this year.
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