MedMen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) has signed a binding term sheet for a senior secured convertible credit facility of up to $250 million from funds managed by cannabis investor Gotham Green Partners. MedMen said that it thinks this is the largest investment to date by a single investor in a publicly traded cannabis company with U.S. operations.
The investment from GGP will be in the form of convertible senior secured notes issued by MM CAN USA, Inc., a subsidiary of the company, totaling up to $250 million on a private placement. MedMen will receive the investment in three tranches assuming the company achieves certain price thresholds and other conditions. The first tranche is for $100 million, with the second tranche of $150 million delivered in two chunks of $75 million. That second investment will be made available at the six-month mark of the closing date and the third six months following the second.
“This strategic partnership with Gotham Green Partners represents another key milestone for MedMen and stems from our long-standing relationship with The Cronos Group and GGP’s brand portfolio,” said Adam Bierman, CEO of MedMen. “The growth capital will be used to operationalize the balance of our footprint and we look forward to creating further alignment with GGP and their global cannabis platform.”
The company said it plans to use the money from drawdowns on the facility for the following purposes:
- Operationalize existing retail licenses, with a focus on Florida, where the Company is licensed for 30 stores
- Integrate assets acquired through pending transactions, including those related to PharmaCann, LLC
- Accelerate geographic expansion through bolt-on acquisitions and investments in core markets
- Support national roll-out of higher-margin in-house branded products
- Continue to invest in technology and digital infrastructure, with a focus on delivery and loyalty programs
- Consolidate the supply chain and enhance margins by ramping up cultivation and production capabilities
“We continue to be impressed with MedMen’s industry-leading retail execution and iconic branding. With MedMen’s fortified balance sheet, the Company’s future has never been brighter,” said Jason Adler, managing member of GGP. “We feel fortunate to have the opportunity to take such a significant stake in MedMen and begin to work actively with the management team and the board to help the Company achieve its goals.”
The statement outlined how MedMen will pay back the investment:
All Notes will have a maturity date of 36 months from the closing date (“Maturity Date”), with a 12-month extension feature available to the Company on certain conditions, including payment of an extension fee. Notes will bear interest from their date of issue at LIBOR + 6.0% per annum. During the first 12 months, interest may be paid-in-kind at the company’s option such that any amount of PIK interest will be added to the outstanding principal of the Notes. The Company shall have the right after the first year, to prepay the outstanding principal amount of the Notes prior to maturity, in whole or in part, upon payment of 105% of the principal amount in the second year and 103% of the principal amount thereafter.
All or a portion of the Notes will be convertible, at the option of the holder, into class B subordinate voting shares of the company at any time prior to the close of business on the last business day immediately preceding the Maturity Date. The conversion price of each tranche of Notes is as follows:
i) for Tranche I Notes, the conversion price will be equal to 115% of the lesser of (a) US$3.10, which represents the closing price of the Subordinate Voting Shares on the Canadian Securities Exchange on the trading day immediately preceding the announcement of the Facility, and (b) the closing price of the Subordinate Voting Shares on the trading day immediately preceding the closing date; and
ii) for Tranche II and Tranche III Notes, the conversion price will be equal to the lesser of (a) 115% of the 20 trading day volume weighted average trading price of the Subordinate Voting Shares as of the trading day immediately preceding the date of issue of such tranche, and (b) US$7.00.
The company may force the conversion of up to 75% of the then outstanding Notes at the applicable conversion price(s) if the volume weighted average trading price of the Subordinate Voting Shares (translated to US dollars) is US$8.00 for any 20 consecutive trading day period. If 75% of the then outstanding Notes are converted by the company, the term of the remaining 25% of the then outstanding Notes will be extended by 12 months.