Is a brief description of financial stability a cause for concern on the strength of MedMen?
MedMen Enterprises Inc. (CSE: MMEN), a cannabis retailer with operations across the U.S., today released its consolidated financial results for the fourth quarter and fiscal year ended June 27, 2020. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated. Beginning in the fourth quarter 2020, the Company began reporting in U.S. generally accepted accounting principles ("GAAP").
We made significant progress during the fourth quarter by focusing on retail profitability, optimizing our corporate infrastructure and strengthening our balance sheet ahead of an exciting new chapter for the Company MedMen Interim Chief Executive Officer Tom Lynch.
Mr Lynch went on to say "Through the strength of our management team and Board of Directors, as well as the continued support of our capital partners, we are well-positioned to execute on our goal of being the leading cannabis retailer."
Fourth Quarter Financial Highlights:
- Revenue: Net revenue across MedMen's operations in California, Nevada, New York, Illinois and Florida was $27.4 million for the fourth quarter, down 40% sequentially, primarily due to the impact of COVID-19 on the Company's retail operations. The Company estimates first quarter fiscal 2021 revenue to be $37.4 million(1), a 37% increase from the fourth quarter fiscal 2020 revenue on a comparable basis.
- Gross Margin: Company-widegross margins were 40% in the fourth quarter compared to 32% in the prior quarter.
- Corporate SG&A(2): Corporate SG&A, which is a non-GAAP financial measure as described below, totaled $13.7 million in the fourth quarter, a 21% decrease from the fiscal third quarter and 58% from the same period last year, representing $77.0 million in annualized cost savings.
- Adjusted EBITDA(2): Adjusted EBITDA, which is a non-GAAP financial measure as described below, was a loss of $23.3 million for the fourth quarter compared to a loss of $26.1 million in the previous quarter.
Full Year 2020 Financial Highlights:
- Revenue: Systemwide revenue across MedMen's operations in California, Nevada, New York, Illinois and Florida was $157.1 million for the full year, up 31% year-over-year.
- Gross Margin: Gross margins across retail operations were 37% for the full year compared to 47% in the previous year.
- Corporate SG&A(2): Corporate SG&A, which is a non-GAAP financial measure as described below, totaled $129.6 million for the full year, a 23% decrease from the previous year.
- Adjusted EBITDA(2): Adjusted EBITDA, which is a non-GAAP financial measure as described below, was a loss of $116.1 million for the full year compared to a loss of $169.3 million in the previous year.
- Includes revenue from pending retail license sale for comparison purposes
- Adjusted EBITDA and Corporate SG&A are non-GAAP financial measures
As of June 27, 2020, the Company had total assets of $575.4 million, including cash and cash equivalents of $10.1 million.
On September 16, 2020, subsequent to the quarter end, the Company announced a total of $20.0 million in additional financing commitments. As of today, the Company has received $10.0 million in gross proceeds under the commitment. On July 3, 2020, the Company also announced it received $10.0 million of proceeds through the sale of a retail license.
During the fourth quarter, the Company recorded non-cash impairment charges of $239.5 million primarily related to its cultivation and manufacturing facilities in California and Nevada and Florida footprint.
Capital Markets and Financing:
- Senior Secured Convertible Financing: During the fourth quarter, the Company closed on $15.0 million in additional gross proceeds under its senior secured convertible debt facility led by funds affiliated with Gotham Green Partners. Subsequent to the quarter end, the Company closed on an additional $5.0 million under the facility.
- Sale of Non-Core Asset: On February 25, 2020 the Company entered into definitive agreements to assign its rights to acquire a licensed cultivation and manufacturing facility in Hillcrest, Illinois for total gross proceeds of $17.0 million. As part of the transaction, the Company received an initial payment of $10.0 million on February 25, 2020. The second payment of $7.0 million was received on March 23, 2020.
Operations by Market:
- California: California retail revenue across 11 store locations totaled $15.5 million for the fourth quarter and $107.5 million for the full year. Revenue in fourth quarter decreased by 44% compared to the prior year period, primarily due to the impact of COVID-19 on store traffic and tourism and temporarily store closures in June due rioting and looting. During the quarter, the Company temporarily closed its Seaside location and subsequent to quarter end, divested this license.
- Nevada: During the quarter, the Company temporarily closed all three locations for eight weeks due to a state-level mandate post-COVID-19. All three locations were open as of June 27, 2020.
- Florida: In July 2020, the Company opened its fourth retail location in the state with the opening of its Coral Shores store. The Company expects to have eight stores open in the state by the end of calendar 2021.
- Illinois: The Company operated two retail stores in Illinois during the quarter – Oak Park and Evanston. Oak Park was the Company's highest grossing store in the fourth quarter.
- Massachusetts: The Company expects to open two stores in Massachusetts during fiscal 2021. Subsequent to quarter end, the Company was granted a provisional adult-used license for its proposed flagship retail location near Fenway Park.
- New York: The Company operates four medical dispensaries in the state, with a flagship location on Fifth Avenue near Bryant Park.
- On May 26, 2020, the Company appointed Niki Christoff to its Board of Directors. Ms. Christoff previously served as a Senior Vice President of Strategy and Government Relations at Salesforce. Prior to joining Salesforce, Ms. Christoff served as Senior Director of Public Policy at Uber. Ms. Christoff also held a number of positions at Google over a span of eight years, including most recently, serving as Director of Global Communications and Public Affairs.
- OnJune 17, 2020, the Company announced that co-founder Adam Bierman, stepped down as a member of the Company's Board of Directors. In addition, Andrew Modlin, the Company's other co-founder stepped down as an observer to the Board of Directors.
- Lender and Landlord Support Agreement: On July 3, 2020, the Companyannounced the execution of definitive agreements with certain lenders, including Gotham Green Partners, Stable Road Capital and affiliates, and the Company's most significant landlord, Treehouse Real Estate Investment Trust. In aggregate, the Company will defer approximately US$32 million in cash commitments over the next 12 months as a result of the agreements
- Capital Markets: On September 16, 2020, the Companyannounced financing commitments totaling over $20.0 million from existing lenders and institutional investors. The commitments include $10.0 million in gross proceeds under a new unsecured convertible facility, $5.7 million in additional gross proceeds under its senior secured term loan led by Stable Road Capital and $5.0 million in additional gross proceeds under its senior secured convertible facility led by Gotham Green Partners.
- Sale of Non-Core Asset: On July 3, 2020, the Company announced the execution of definitive agreements for the sale of a retail license, which resulted in $10.0 million in proceeds to the Company
- Store Opening: On July 30, 2020, the Company announced the opening of its Coral Shores location near Fort Lauderdale, Florida. MedMen Coral Shores is the Company's fifth operational location in Florida.
- Board of Directors: On August 4, 2020, the Company announced the appointment of Al Harrington to its Board of Directors. Mr. Harrington is the founder of Viola, Inc., a premium cannabis company, and the founder of Harrington Wellness, a manufacturing company of non-psychoactive cannabinoid products. Prior to his entry into the cannabis industry, Mr. Harrington was a professional basketball player for 16 seasons in the NBA.
- West Hollywood, CA: On August 3, 2020, the City Council of West Hollywood adopted an urgency ordinance to create a new "Legacy Cannabis Business License" which will permanently allow for both medical and adult-use sales of cannabis by MedMen West Hollywood and the three other pre-existing medical operators, bringing the collaborative efforts between the City of West Hollywood and other related parties to a final resolution.
- Boston, MA: On August 6, 2020, the Massachusetts Cannabis Control Commission voted in favor of granting the Company a provisional adult-use license for its proposed retail location near Fenway Park. A final license for this location is subject to meeting various conditions prior to opening, which is expected to occur in 2021.
- Newton, MA: On October 8, 2020, the Massachusetts Cannabis Control Commission voted in favor of granting the Company, a provisional adult-use license for its proposed retail location in the city of Newton. A final license for this location is subject to meeting various conditions prior to opening, which is expected to occur in 2021.
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