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Did MedMen’s Q3 Earnings Start a Path to Recovery?


Nov. 20 2020, Updated 11:50 a.m. ET

MedMen (OTCMKTS:MMNFF) released its results for the third quarter of fiscal 2020 on May 27. The stock declined 4.0% and closed at $0.35 on the OTC markets. MedMen stock also fell by 3.0% and closed at 0.48 Canadian dollars on the Canadian Securities Exchange. The company missed the revenue estimates but showed YoY (year-over-year) revenue growth. The adjusted EBITDA losses were lower than the estimates. Let’s dig into the third-quarter results and see if there’s any hope for MedMen to recover this year.

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MedMen’s Q3 revenue missed estimates, showed growth

MedMen reported 41% YoY revenue growth to $45.9 million. However, the revenue was lower than analysts’ estimate of $47.9 million. Sequentially, the revenue grew from $44.0 million in the second quarter. The company saw growth in its California, Nevada, New York, Illinois, and Florida operations. The markets in California and Illinois contributed to the highest sales in the quarter. California’s retail revenue showed a 19% YoY increase at $29.6 million. The state’s same-store sales also rose by 5% YoY. MedMen thinks that California is its primary revenue driver. The company plans to expand in the state with three new stores.

Illinois is a new market for the company with just two stores. The retail revenue was $6.7 million in the third quarter despite the lockdown. Sequentially, the retail revenue grew 282% from the second quarter in Illinois. Management said that the market in Illinois hasn’t been impacted much by COVID-19 compared to California and Nevada. Nevada’s retail revenue was $4.7 million for the third quarter, which showed a 5% increase YoY. However, the business in Nevada took a hit as tourism declined amid the pandemic.

Florida is also a strong market for MedMen. However, the company temporarily closed five stores in Florida and redirected products to states with more traffic.

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Q3 losses were lower

The third-quarter EBITDA losses came in at $20.7 million lower than the loss of $45.5 in the third quarter of fiscal 2019. Also, the EBITDA loss came in lower than $35.0 million in the second quarter fiscal 2020. The decline in the EBITDA losses could be attributed to a reduction in SG&A expenses. The SG&A expenses declined 51% YoY to $17.3 million in the third quarter, which showed a sequential decline of 35% from the second quarter of fiscal 2020. Management said that cost-saving initiatives like headcount reductions and a decline in marketing, legal, and technology costs helped lower the SG&A expenses. The gross margin also improved to 34% in the third quarter compared to 29% in the third quarter of 2019.

MedMen’s balance sheet

In 2019, MedMen struggled through a cash crunch. The company had to use its stock as payment to the supplier and its CEO left. Now, the turnaround and restructuring plan with Sierra Constellation Partners has been taking effect. With the current leadership team from Sierra, MedMen has been working to strengthen its balance sheet. The company ended the quarter with cash and cash equivalents of $31.8 million. MedMen also raised $7.8 million in gross proceeds under its equity financing transaction. The company received $12.5 million in additional gross proceeds under its Gotham Green senior secured convertible note facility with gross proceeds of $17.0 million through the sale of non-core assets.

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Management stated that due to uncertainty amid COVID-19, MedMen can’t provide additional guidance. However, the company will maintain its overall growth, reduce the cash burn rate, and attract additional capital. Currently, staying afloat amid the pandemic is the main priority for MedMen and other cannabis companies. Cannabis companies have struggled to obtain financial aid. Industry group workers and lawmakers want to make the banking bill part of a coronavirus relief bill. The bill could help smaller marijuana companies.

A surge in marijuana sales has benefited many cannabis companies. Cresco Labs (OTCMKTS:CRLBF) will likely report another good quarter. The company has continued its expansion plans due to the current demand. Canopy Growth (NYSE:CGC)(TSE:WEED) will also report its results for the fourth quarter of fiscal 2020 on May 29 before the market opens. Read Canopy Growth Might Impress Investors with Its Q4 Earnings to learn more. On Wednesday, Canopy Growth stock fell 0.55%, while Cresco Labs stock rose 4.9%, respectively. The Horizons Marijuana Life Sciences ETF (TSE:HMMJ) fell 2.6% on Wednesday.

Stay with us to learn more about the marijuana sector.


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