There is no denying the fact that even though cannabis in the United States is not federally legal, there is still a massive market for medical and recreational cannabis in a select number of states. The U.S. legal cannabis market was valued at $11.9 billion in 2018, while 32 states have legalized medical cannabis and 10 states have legalized recreational cannabis. There is a massive potential to capitalize on the retail market in the United States and there is one company that might be currently sitting at a very attractive valuation — Medmen Enterprises (MMNFF).
Medmen can count a number of impressive milestones over the past few years, but it has also had its fair share of setbacks. Medmen operates in 12 states across the United States, they have 35 retail locations currently operating and 84 retail licenses. The company has completed over 2 million retail transactions since 2018 and is on track to continue expansion with Florida on the top of their list.
Medmen has its eyes on the Florida market with plans to open 35 locations across the state in various cities from Miami all the way up to Jacksonville. Florida is the third most populous state in the United States with medical marijuana that is estimated to reach $1.4 billion by 2021. This expansion for Medmen should bring in a massive increase in revenues for the company and will also allow the company to cement their brand image in one of the largest and upcoming marijuana markets in the US.
Medmen prides itself on its brand and customer experience. In 2019 Medmen launched one of its largest marketing campaigns to date that was focusing on “the new normal”. This idea focuses on the fact that legalized and regulated cannabis creates safer, healthier and happier individuals and communities. I think building a respected and distinguishable brand is an extremely important aspect of the retail cannabis business and will separate the successful companies from the ones that will eventually fade out. Medmens approach to branding, in my opinion, is very impressive and revolutionary and could turn out being one of the most successful brands within the fast-changing cannabis sector. When it comes to building a successful retail cannabis brand in my option it takes a few things to achieve success. The Brand needs to be easily distinguishable, simple yet bold, and have consistent customer experience in every location. In the cannabis sector education is also a huge aspect of building a loyal customer base, and of course great products. Medmen is well on its way when it comes to achieving all of these aspects.
Now let’s talk about the stock. Medmen’s stock has seen a volatile ride, hitting highs of almost C$10 dollars on the CSE in 2018 but later falling into a nasty downtrend that brought the stock to its lowest levels its ever seen recently at around C$2.50. The company still carries a fairly large market cap of about 2.5 billion dollars. In my opinion, Medmen is trading at a very low valuation and should be put on the top of anyone’s watchlist who is looking for exposure to the US Retail Cannabis market.
Potential Risks:
- Regulatory / Political Risk – At the state level, Cannabis is legal (in several) and regulated appropriately, but is still classified as a Schedule I substance by the DEA and illegal at the federal level. With federal law overriding state law, any and all changes in enforcement or regulation could potentially be hurtful to Medmen’s business. Further, any material change or shift in certain political parties that oppose legal cannabis will negatively affect Medmen’s business and may enact state/federal laws and regulations which could hinder Medmen’s growth plans.
- Execution Risk – Due to the fact that a material portion of Medmen’s future growth is tied to growing its store base against the backdrop of a dynamic regulatory environment, there is notable risk associated with the company’s ability to effectively source / grow / integrate its store base at an adequate pace.
- Competition Risk – The cannabis space is ripe with a broad range of competition from both existing / upstart companies. While license restrictions mitigate these threats in many of Medmen’s key geographic markets, there is no guarantee that current license regulations will stay in place.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has a long position in Medmen stock.
