In one of the largest investments to date by a single investor in a publicly traded cannabis company, MedMen (MMNFF) announced this morning that Gotham Green Partners (GGP), a leading investor in the global cannabis investment sector, will invest up to USD$250 million into the Los Angeles-based cannabis company.
In reaction, Northland analyst Paul Penney reiterates an Outperform rating on the cannabis stock, with a $9.00 price target, which implies nearly 178% upside from current levels. (To watch Penney’s track record, click here)
Turning to the specifics, MedMen would receive $250M in a convertible note structure, with the first $100M closing in April. The next two tranches can come 6 months and 12 months after the closing of the initial $100M investment. For Tranche I (the first $100M) the conversion price is the lesser of US$3.565/share or a 15% premium to whatever the share price is before it closes next month. For Tranche II and III (US$75MM each), the conversion price is the lesser of a 15% premium to the 20-day VWAP at the time or US$7.00/share. At $3.565/share, the $100MM from Tranche I would result in issuing 28.1 million shares if converted.
Penney highlights a “handful of positive quantitative and qualitative positives” out of the GGP investment:
- We believe this $250M strategic investment essentially takes all lingering future dilution / equity financing risks off the table. Said another way, we believe many MMEN naysayers and fence sitting / potential MMEN shareholders have been reluctant to invest due to the apprehension around ongoing dilution and / or the draconian fear that MMEN was going to be challenged to effectively raise additional growth capital.
- We believe the GGP relationship has several strategic benefits that go above and beyond the capital infusion. In time we believe GGP will likely gain an official MMEN BOD seat and believe having even more “adult supervision” to guide MMEN’s operational / financial pathway is only additive to their long term efforts.
Penney concluded, “We believe MMEN is in the early innings of a multi-year growth story and is poised to be one of the preeminent brands in legalized cannabis. With successful operational / financial execution (especially with their newly minted / highly capable CFO & COO), we believe MMEN’s near term revenue / earnings power and longer term hard to replicate / strategic value will come more clearly in focus.”
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.