After a string of what some considered successes, MedMen Enterprises (MMNFF) is facing self-made adversity. The CFO of the company left MedMen about 3 months ago and now has named various executives of MedMen in a lawsuit alleging that that members of the company enriched themselves without full disclosure. Outside of the company, pressure is brewing as inside information begins to trickle out of the company from the lawsuit. MedMen has not been profitable to date, and yet executives are said to be earning some $10 million in salaries.
Normally, this kind of news would send a stock tumbling. While the stock has remained in a narrow range, it may be that the stock could sell off if more negative news hit the wires.
Is MedMen A Good Investment?
I have not been the world’s biggest fan of MedMen when a practical look at its businesses is taken to derive its value. To begin with, most cannabis consumers are lower income and younger in age. MedMen has put most of their dispensaries in higher-affluence neighborhoods, contradictory to the demographics of cannabis users. A lot of cannabis consumers spend about $35.00 on average per visit to their local store. And, a lot of these consumers work in what some would call “alternative” jobs such as restaurant workers. So, targeting affluent neighborhoods may not be the best strategy to start with.
MedMen has some 78 dispensaries around the United States. Instead of focusing on top line growth the company needs to focus on becoming profitable. Dispensaries are a key variable to success for the industry – Amazon has no ability to disrupt this portion of the retail world. Yet, with 78 stores that are losing money, an investor could question some of the logic of continued acquisitions and expansions until the company achieves profitability.
Is The News On MedMen All Bad?
On the other hand, MedMen have done a solid job of building a portfolio of retail operations. MedMen recently merged with PharmaCann and added some 24 more stores to their 54 store list. This is a major presence for a company across the American landscape. The licensed ability to dispense in major markets is a large asset. It takes time for businesses to build up and achieve profitability. But, MedMen is unprofitable and burning through cash in the process.
I am very bullish on the cannabis industry. However, not all companies are going to succeed. I’ve stayed away from MedMen for the simply because I feel they are overextended and burning too much cash. Now, with the recent revelations of insiders potentially enriching themselves – on top of a very healthy salaries – this may not bode well in the end for the company; I am staying away from this stock.
I will be looking long-term at how the retail aspects of the company play out and if MedMen starts to turn a corner with profitability. And, I am interested in seeing how the lawsuit plays out and nay damage this may bring about the company. The company is already loosing money. If the company were to pay hefty fines, this would be yet another issue for the step backwards for the company.
Author’s Disclosure: I have no positions on MedMen at this time and am not planning on any new positions in the near future.