MedMen Enterprises Inc. (OTCQX: MMNFF) delivered its consolidated financial results for its second-quarter fiscal 2021 ending December 26, 2020. Net revenue across MedMen’s operations in California, Nevada, New York, Illinois, and Florida was $33.8 million for the second quarter, up 0.3% sequentially excluding Evanston. Still, the company delivered a net loss of $68.9 million which included $24.0 million of tax provision expense, compared to a net loss of $93.2 million which included a tax provision benefit of $14.6 million in the same period last year.
“This past quarter was one of continued progress. We have continued to add depth to an already strong management team, we have maintained the support of our capital partners, and we continue to outpace the cost-cutting outlined in our turnaround plan,” said Tom Lynch, Chairman and Chief Executive Officer of MedMen. “Our company revenue growth temporarily slowed due to retail restrictions in California, but we see consistent momentum across our portfolio, and our significant gross margin expansion is a strong indicator of how we are continuing to build a platform for sustainable future profitability. Over the next several quarters we plan to accelerate our growth on the foundation of our strong brand recognition and the tremendous improvements we have made in operational efficiency and discipline.”
The company reported that the general and administrative expenses were $33.8 million in the second quarter, a 47% decrease from the same period last year. However, revenues are barely covering the company’s expenses.
As of December 26, 2020, the company said it had total assets of $503.6 million, including cash and cash equivalents of $7.5 million. MedMen also announced the execution of subscription agreements with certain institutional investors for the sale of up to approximately $5.8 million of units at a purchase price of $0.3713 per Unit. The stock is currently trading near 46 cents. The Private Placement will be completed in tranches, with the initial tranche consisting of 7,800,000 Units for aggregate gross proceeds of $2.9 million. On December 17, 2020, the company named Reece Fulgham as Interim Chief Financial Officer. On the company’s earnings call Fulgham said, “As Tom mentioned, we did raise an additional $10 million from Gotham Green Partners in January and we will continue to work closely with our Capital Partners to fund the final stretches of our turnaround plan. We also announced this month we are partnering with Moelis a strategic advisor as we look to potentially diversify our funding sources and deleverage our balance sheet.”
A few weeks ago, Law360.com reported that a California judge again ordered MedMen to pay its former chief financial officer at least $500,000 to cover his legal fees in an ongoing lawsuit over whether the executive was wrongly terminated. James Parker’s employment contract mandated that MedMen pay his legal fees in the event of a legal dispute, which resulted in the notoriously worded lawsuit that exposed many of the company’s darkest flaws.
Cowen Drops Coverage
Cowen & Co dropped analyst coverage on MedMen last week. Analyst Vivien Azer wrote in her last report dated in December, “We take our FY21 estimate to $168.5 mm, and leave our FY22top line estimate unchanged at $216 mm. We raise our GM outlook meaningfully given the progress made this quarter and believe that MMEN could post a ~50% gross margin in FY22assuming continued to benefit from its buying processes, coupled with slightly more stability in markets like MA and IL from a wholesale perspective. We raise our PT to $0.20, implying a 2.8x EV / FY2 revenue multiple. Maintain Market Perform.”
On the earnings call, Lynch said, “Finally, last quarter, I hit on my excitement around the acceleration of growth in existing markets such as California and Florida, where we have a number of high profile stores set to open over the next 10 months, as well as new markets like Massachusetts, where we have some of the best locations in the state. We’ve been slightly delayed in our Emeryville openings in California and our opening in Miami Beach, who are hard at work to get those doors open in the next several months.”
“We’re on schedule for two openings in San Francisco, our two openings in Massachusetts, and our significant pipeline of openings in Florida on the back of our ongoing Eustis expansion. We believe we have the ability to open up to an additional 10 stores in Florida this year. And we view our growth strategy there as one of the most exciting opportunities we given our ability to open an unlimited number of dispensaries as we continue to execute in cultivation and manufacturing. We appreciate the patience and support of stakeholders as we continue to execute. And we strongly believe that patients will be rewarded for the bright future ahead of us.”