The cannabis industry has been taking a beating of late. Now there’s more bad news: this beatdown may continue for the foreseeable future for several cannabis stocks, which is what makes them wholly avoidable in the fourth quarter. The first to watch out for now is MedMen Enterprises.
MedMen Enterprises (OTC:MMNFF) is a vertically integrated multistate operator
On the surface, MedMen has some admirable attributes. Its branding does seem to be resonating with its affluent clientele, and the company has a presence in a number of top-tier legal U.S. states. Further, it’s in the process of acquiring PharmaCann in an all-stock deal that’ll double the number of states it has a presence in, as well as vault it to the No. 2 spot in terms of operational retail locations. Sounds great, right?
The problem is that while many of its peers have been whittling away at their costs as revenue expands, MedMen’s expenses just keep ballooning. Even with the company on track to reduce general and administrative expenses by 30% in the fiscal fourth quarter from the December 2018-ended quarter, according to a preliminary Q4 update, MedMen has reported an unsightly $178.4 million in operating losses through the first nine months of fiscal 2019. That’s far and away the biggest operating loss of any multistate dispensary operator.
And by the looks of things, MedMen’s operating costs aren’t going to dip substantially anytime soon. It’s aggressively expanding into the Florida market, and assuming its deal to acquire PharmaCann gains regulatory approval, it’ll then have to contend with PharmaCann’s existing operating and expansion costs.
Yet another hurdle for MedMen is that its deal to acquire PharmaCann is being completed entirely by issuing its own stock. In other words, MedMen is going to dilute its existing shareholders and very likely overpay for PharmaCann to make this deal happen.
Like others in the business, MedMen is a long way from generating a recurring profit, and it deserves to be avoided by investors until it makes significant progress on its bottom line.