MedMen shares closed with a gain of 9.2% on January 31 on the OTC markets. The company announced the departure of its CEO Adam Bierman. The departure news came amid the company’s cash crunch. Recently, MedMen used some of its shares as payment to its suppliers as the company is struggling financially. Let us take a look at what made its’ CEO depart.
MedMen CEO departs
On January 31, MedMen announced that Adam Bierman, its co-founder and CEO, would step down effective February 1. The company’s board of directors formed a select committee to choose the new CEO. Meanwhile, Ryan Lissack will act as the interim CEO. Currently, Ryan is the company’s COO and chief technology officer. MedMen didn’t specify why Bierman stepped down as the CEO. We think that it could be the pressure that the company is facing amid headwinds in the marijuana sector.
MedMen also mentioned that Bierman would surrender all of his Class A super-voting shares. A BNN Bloomberg report discussed some analysts’ views. Eight Capital cannabis analyst Graeme Kreindler said, “with Bierman relinquishing of his super-voting shares, the company may find it easier to sell some of its assets in future M&A deals.” Meanwhile, Matt Bottomley, a cannabis analyst at Canaccord Genuity, thinks that MedMen’s balance sheet still doesn’t show strength. Investors should take note of this during the next earnings call. Recently, I discussed how cannabis companies have been bad at forecasting. An MKM analyst thinks that investors should listen carefully to managements’ negative comments compared to the positive ones.
MedMen strengthened its position as a stable cannabis company in the US. However, sector headwinds dragged the company’s performance. Recently, I discussed how the company is making strategic and cost-cutting changes due to financial difficulties. The company canceled its acquisition of PharmaCann and also laid off employees last year.
Cannabis industry’ cash crunch
The marijuana sector suffered a downturn in 2019 when Canada and the US struggled with lower cannabis sales. A lack of legal retail stores pushed consumers towards the illegal market. As a result, the illicit marijuana market saw a drastic increase. Strenuous regulations caused a delay in opening legal stores last year even though it has been a year since Canada legalized marijuana. Many US states have also legalized medical or recreational cannabis.
MedMen is trying to secure its presence in Florida even though Trulieve has dominated the state’s market place. The company also has a presence in other US states that have legalized marijuana. MedMen supported Floridians in setting up campaigns to get cannabis legalization in the state. The company is also securing prime locations in states like California, New York, Nevada, and Florida. Recently, I discussed how California’s black market is rising and taking a toll on legal sales.
Notably, the headwinds also took a piece out of big players like Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC)(TSE:WEED), and Hexo’s (TSE:HEXO) performance last year. Despite having a solid footing in the industry, these companies struggled with profitability. Aurora Cannabis had to stop its expansion to cut costs. Hexo had to layoff employees as a cost-cutting strategy. Canopy Growth is in a slightly better position because of Constellation’s investment. However, due to the losses, Constellation decided not to increase its stake in Canopy Growth. Financially, Aphria (NYSE:APHA) and OrganiGram might be slightly better off in the cannabis space right now.
Leadership changes in the cannabis industry
In addition to MedMen, other companies have seen leadership changes. At the beginning of 2019, Canopy Growth CEO Bruce Linton left the company. Later in 2019, CannTrust’s regulatory scandals led to its CEO’s termination. Hexo CFO Michael Monahan stepped down in October. Aurora Cannabis saw leadership changes in the company last year.
Leadership changes impact a company’s stock. Sudden changes in leadership make investors skeptical about the company’s performance. MedMen lost 83.9% of its stock value in 2019. Surprisingly, MedMen’s CEO departure caused its stock to rise on January 31. The stock gained 9% before closing. In January 2020, the stock has lost 17% YTD (year-to-date). Meanwhile, Sundial has lost 60%, while Supreme Cannabis has lost 24% YTD.
Aurora Cannabis stock has lost 12.5%, while Canopy Growth stock has gained 6.9%. Aphria has lost 10.7%, while OrganiGram has gained 5.7%. Meanwhile, Hexo has fallen 21.3% YTD.
MedMen will report its earnings for the second quarter of fiscal 2020 on February 26. Stay tuned to learn more about the company’s future strategies.