MedMen Enterprises Inc. (MMEN.CN) (MMNFF) claimed to be the unicorn of marijuana companies when the California-based business went public in May of 2018. Now just 18 months later, it has a market cap of $170 million, according to Yahoo Finance, and is being forced to dramatically curtail its plans.
On Friday, the company said it was taking several steps to achieve profitability including laying off of 190 employees or 20% of its workforce, cutting back on store openings and selling assets.
Cowen & Co senior analyst Vivien Azer wrote, “While MMEN has established leading brand equity in California, it has come at a significant cost. The announced changes are clearly necessary if MMEN aims to remain a going concern, in particular in a capital constrained environment. That said, the magnitude of the change, for an organization that has experienced an unusually high amount of turnover in senior leadership, will present challenges from an execution standpoint. Maintain Underperform.”
“We have a clear plan to increase our market share, while at the same time enhancing our margins and reducing our corporate overhead,” said Adam Bierman, MedMen co-founder, and chief executive officer. “We must unlock our operating leverage and bring the company to positive EBITDA. Given market conditions, capital allocation is more critical than ever. As such, we announced a layoff of over 190 MedMen employees.”
Market watchers may recall that when the company went public, Bierman and his partner Andrew Modlin were criticized for the amount of money they were paying themselves. In subsequent quarters, analysts pointed to the company’s extremely high expenses, but Bierman would explain it away as the cost of building a new company.
Bierman added, “This layoff includes many hard-working, mission-based people whose presence will be sorely missed. While it is never easy to let employees go from the MedMen Family, we believe this decision is in the best interest of our company as we position ourselves for growth in the years ahead.” No doubt those laid off employees will be thinking about the mansion Modlin just acquired for $11 million in July.
The company also said it was consolidating its offices, which would foster team building as well as saving money. The remaining employees will have a share-based reward program based on the company meeting certain targets. MedMen also noted that it will trim too many layers of overlapping jobs.
In addition to the employee layoffs, which the company said would save $10 million, MedMen is also selling its interest in Treehouse REIT for net proceeds of $14 million. So far, its gotten $7 million and has agreements to sell the remainder. Treehouse was buying the MedMen properties and then MedMen was leasing them back, an option that has increased within the industry as cannabis companies monetize their properties as financing has gotten more expensive.
MedMen had been on an aggressive expansion plan as it spent millions on dispensaries and licenses in a quest to be one of the largest multi-state operators. Now the company is saying it will cut back on store openings in 2020 and only open a dispensary that will make over $10 million in the first 12 months. It will delay further spending in New York in Arizona.
The company has hired Canaccord Genuity to “explore strategic alternatives for certain operations and licenses in states that are currently deemed not critical to the Company’s retail footprint.” It has also sold other investments in various brands and has netted $8 million so far.
Not only is the company laying off employees, but it is also cutting back on its marketing and technology budgets in order to save $20 million. In other words, don’t expect any more Spike Jonze videos. MedMen said it thinks it can save $2 million by renegotiating insurance policies and outsourcing human resources.
The stock was lately trading at 98 cents, down from its 52-week high of $4.19. Cowen & Co. has a target price of 85 cents.