MedMen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) stock fell over 5% to lately trade at $2.86 as more top executives leave the company amid mounting lawsuits. On Friday it was announced that Ben Cook, Chief Operating Officer, and Lisa Sergi, General Counsel and a member of the MedMen Board of Directors both resigned.
“We appreciate the contributions of all current and former MedMen team members as we work to build the world’s leading cannabis company, and I have the utmost confidence in the management team. Their expertise, skill set, and experience set the standard of excellence for the industry,” said Adam Bierman, MedMen CEO.
The company said in a statement that the leaders of the operations group will now report directly to Bierman. The leaders of the legal team include Dan Edwards, who will continue in his role of Senior Vice President of Legal Affairs, and report directly to the CEO.
In addition to those departures, Senior Vice President of Corporate Communications Daniel Yi has also resigned. Yi has been with the company since 2016, but his resignation wasn’t mentioned in the press release. Also, during its fiscal quarter ending March 30, 2019 MedMen named Ryan Lissack Chief Technology Officer. Mr. Lissack is a seasoned technology executive with over 20 years of experience.
Of course, this follows the very high profile resignation of Chief Financial Officer James Parker, not long after the company went public. Parker followed that action with a lawsuit alleging numerous misdeeds at the company including disparaging remarks by the Bierman, inappropriate spending and serious accusations of improper actions regarding the stocks purchases and mortgage applications. Michael Kramer is the new CFO. Kramer worked previously in senior jobs for retailers such as Apple Inc., Abercrombie & Fitch and Forever 21.
MedMen is facing another lawsuit from Brent Cox and Omar Mangalji founders of The Inception Companies founders (through an affiliated entity – MMMG-MC, Inc. – that holds a significant stake in MedMen’s management company MMMG, LLC). The two filed a complaint against Adam Bierman; Andrew Modlin and various MedMen Enterprises (OTC: MMNFF) entities for alleged breaches of fiduciary duty. A Los Angeles Superior Court though denied a request from the plaintiffs for a temporary restraining order and a preliminary injunction and giving the company a slight early victory.
However, similar to Parkers claims that Bierman and Modlin are self-dealing when it comes to the company, Cox and Mangali also stated, “MedMen veneer is a complex web of interconnected subsidiary entities, virtually all of which are directly managed, directed, controlled, and owned by BIERMAN and MODLIN, and all of which always pursue the best interests of BIERMAN and MODLIN, rather than the best interests of any stakeholder or entity. It is that perverse interconnectedness and rampant, brazen self -dealing that renders the actions of BIERMAN and MODLIN, and of the Entity Defendants, unlawful.”
In the company filing, it also describes a legal claim filed against the company relating to a financial transaction and seeking damages of approximately $3.5 million. “The claim is at a very early stage and the Company believes that it has no merit. As a result, no amount has been set up for potential damages in these financial statements.”
Just last month MedMen acknowledged in a statement that the OTC Markets had made inquiries about promotional activity relating to promotional materials encouraging investors to buy the company’s Class B Subordinate Voting Shares. The company made a statement claiming it wasn’t aware of stock promotion activity by a company it hired for public relations. Yet in the statement, the company admits “There are statements made which encourage investors to purchase the stock of the Company.”
MedMen said at the time that it “is committed to compliance with the OTC Markets Group Policy on Stock Promotion and the OTCQX Standards and Canadian securities laws. The Company does not condone the use of sensational language to describe the Company’s business prospects or the growth potential of the Company’s industry. The Company does not condone any statements made regarding urgency to invest in the Company’s stock or any other similar statements. Going forward, the Company will affirmatively prohibit all third-party service providers from including such statements in any investor relations or promotional materials respecting the Company.”
It seems the market is whispering about the company’s financial state. Last week, MedMen announced unaudited systemwide revenue for its fiscal 2019 third quarter ended March 30, 2019. The systemwide revenue was $36.6 million (CA$48.8 million). The company is expected to post its fiscal 2019 third-quarter results in May 2019 and nothing other than revenue was mentioned in the press release which was intended to soothe investors fears. In the fourth quarter, the gross profits only reached $16 million, while its expenses hit a whopping $77 million. At the end of 2018, MedMen noted that its current liabilities had reached $87 million.
Basically, the company has taken on a lot of debt with the anticipation of big cannabis sales. However, the sky-high expenses are eating away at what revenue is coming in. The debt is going to have to be paid back at some point, but will the revenue coming in be enough to keep up?