MedMen Wins Merger Approval, Now It Must Rescue Itself

Medmen Enterprises  achieved a quiet victory on September 11th as the HSR Act waiting period expired. Thanks to this expiration, the company can now move forward with its acquisition of PharmaCann.

However, since last December, MMNFF stock has lost more than half of its value. It trades in the $1.75 per share range as of the time of this writing, near 52-week lows. With the company running out of money, and its stock below the $2 per share range, having both funding and a robust equity has become a challenge.

MedMen Can Now Acquire PharmaCann

When the two companies announced the proposed merger back in December, the deal called for MedMen to purchase PharmaCann with 168.4 million of its shares. Those held a value of about $682 million on the day of the announcement.

However, thanks to a drop in MMNFF stock, MedMen will now buy PharmaCann for about $330 million worth of stock. This gives the company 79 cannabis facilities, including 66 retail locations in 12 states. One of those states is Illinois, where recreational cannabis will become legal on Jan. 1.

MedMen Must Now Save MMNFF Stock

Now that PharmaCann is in the fold, MedMen may have a much more significant task on its hands — saving MMNFF stock. The falling stock price effectively reduced the cost of acquiring PharmaCann. However, on balance, it also represents a huge negative for the company.

As I mentioned in a previous article, MedMen continues to support itself through stock dilution. That probably explains a lot of the reason why MMNFF stock now trades at around $1.75 per share. This comes in at more than 77% below the 52-week high achieved last fall.

Other reasons deal with the financials itself. In the previous reported quarter, MedMen brought in $36.6 million in revenue, a 155% increase from year-ago levels.

Still, while that might sound encouraging, the company spent just over $68 million in selling, general, and administrative (SG&A) expenses. Although that came down from previous quarters, it shows an alarming disconnect between spending and revenue. As a result, losses for the last quarter came in at just over $63.07 million. This exceeds the $21.9 million MedMen held in cash.

Obviously, with several quarters of losses predicted among those financials, MedMen will have to find a new source of funds quickly to stay in business. With $88.75 million in debt and the company now cleared to buy out PharmaCann, it will likely turn again to dilution.

Concluding Thoughts

With nothing standing in the way of the PharmaCann merger, staying funded while keeping stockholders on board now becomes MedMen’s biggest short-term challenge. MedMen already benefitted from robust revenue growth before PharmaCann, and a combined company should only make that stronger.

However, analysts expect losses to continue, and with SG&A expenses still running ahead of revenues, stock dilution has become its primary source of funding. Unless and until investors can see profitability at the end of the tunnel, they should avoid MMNFF stock.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Will Healy
Will Healy is a freelance business and financial writer based in the Dallas area. In addition to marijuana, energy, and mining stocks, he has also written about real estate, insurance, personal finance, and macroeconomics. In addition to Capital 10X, his articles have appeared on sites such as InvestorPlace, Yahoo! Finance, MSN Money, Kiplinger’s Personal Finance, GOBankingRates, and Seeking Alpha. Will holds a B.S. in Journalism from Texas A&M University, an M.S. in Geography from the University of North Texas, and an MBA from the University of Texas at Dallas. Phone: 416-721-8257. Address: 682 Indian Road Toronto, Ontario M6P 2C9.
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