MedMen Enterprises Inc. (OTCQX: MMNFF) reported a fairly solid third-quarter 2020 but warned that COVID-19 has affected its sales.
On the company’s earnings conference call, interim CEO Tom Lynch said, “Unfortunately, COVID has impacted our sales since the end of March; we’re down in April overall, but have seen a steady increase since. While we’re still not back to our normal levels, pre-COVID, particularly in California, we’re optimistic about our ability to recapture traffic as soon as stay at home orders are lifted.”
MedMen also noted that its Nevada location had suffered saying, “We saw a decrease in overall sales in this market, particularly given the impact that the pandemic has had on tourism into Las Vegas, we’re encouraged about the recent decision to open up cannabis retail again, and have already begun to see a steady ramp-up in revenue.”
Third Quarter Results
MedMen reported that its third-quarter revenue of $45.9 million was up 41% over 2019 and up 4% sequentially. 64% of the company’s retail business is in California. CFO Zeeshan Hyder said on the call, “Since the end of March, we did see a slowdown in sales into our California stores due to the shelter at home orders and reduced tourism. Accordingly, we modified certain store operations and reduced staff. However, over the past few weeks, we’ve seen a steady rebound of sales, with overall sales per week up over 20% versus the end of April.”
The net loss and comprehensive loss was $76.9 million for the quarter versus $96.4 million in the previous quarter. The net loss from continuing operations was $68.8 million versus $75.2 million in the previous quarter. Third-quarter 2020 net loss attributable to shareholders of MedMen enterprises was $39.9 million or $0.10 per basic and diluted share. Overall, adjusted EBITDA loss for the quarter was $20.7 million compared to $35.1 million in the previous quarter.
On a positive note, Hyder said, “We had a first full month in March of our retail stores being cash flow positive on an after-tax basis. While we expected to be here sooner, we now have a playbook for how to continue building off the progress being made to increase gross margins and reduce store-level expenses.”
Gross Margins Fall
The company reported that its retail gross margins for the third quarter were 47% versus 51% for the second quarter. “The decrease was related to a one-time inventory adjustment we took during the quarter. Without the adjustment, overall gross margins for the quarter was 51%, and if you look at the month of March alone, our gross margin was over 53%, reflecting the impact of our new vendor agreements.” Cowen & Co analyst Vivien Azer asked on the call, “Despite all your costs, cost savings, your OpEx is still running three times ahead of gross profit and now you’re not going to be vertically integrated, which means it seems like you’re probably getting up to margin there though you’re saving yourself some of the overhang on DNA.” Lynch said the company will become incredibly efficient in order to protect the margins.
MedMen ended the third quarter of 2020 with $31.8 million of cash and cash equivalents. During the quarter, the company closed an equity financing transaction of $20 million of which $8 million was funded during the quarter, the remainder was funded in the second quarter. It also closed on $12.5 million of additional gross proceeds under Tranche 4 of its Gotham Green convertible notes facility.
Expansion Plans & Closings
MedMen said it temporarily closed five stores in Florida to redirect the limited product to the higher traffic locations but said it fully intends to open those backup. The company also said that it expects to open stores in San Francisco, Emeryville, Pasadena, Fenway area of Boston, Chicago, and Miami, all in the next 12 months; stores that could be at the top of the list in terms of performance in their opinion.