MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF) today released its consolidated financial results for fourth quarter and fiscal year ended June 29, 2019. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.
“Fiscal 2019 was a transformative year for MedMen, with over two million completed retail transactions to date and revenues increasing 227% year-over-year,” said Adam Bierman, MedMen co-founder and chief executive officer. “Our success was due, largely in part, to our loyal customer base. Throughout the year, we served over one million customers from all 50 states and more than 100 countries. In California, the largest cannabis market in the world, MedMen surpassed a record $110 million in annualized run-rate retail revenue.”
Mr. Bierman continued, “While industry tailwinds propelled us forward over the past twelve months, changing macroeconomic conditions have led us to refocus our strategy, to reevaluate our assets and to determine where it makes most sense to allocate capital going forward. As we progress into the next fiscal year, our go-forward strategy will therefore focus on three key objectives: optimizing our current retail assets, unlocking the further potential of our factories, and leveraging our omnichannel strategy. As we bring all of our factories online and up to full capacity, and simultaneously optimize our current retail assets across our core geographic markets, we continue on our path toward profitability.”
Fourth Quarter Fiscal 2019 Review
- Revenue: Systemwide revenue across MedMen’s operations in California, Nevada, New York, Illinois and Arizona increased to $42.0 million for the fourth quarter, up 15% sequentially and 104% year-over-year.
- Gross Margin: Gross margins across retail operations were 50% in the fourth quarter compared to 53% in the prior quarter. The decline in gross margins was related to new store openings, which initially have lower gross margins.
- Corporate SG&A: Corporate SG&A totaled $33.0 million in the fourth quarter, a 15% decrease from the fiscal second quarter and 6% decrease from the fiscal third quarter. In total, this represents $22.4 million in annualized savings over two quarters. In May 2019, the Company announced that it would be targeting a 20% overall reduction from the fiscal second quarter.
- Adjusted EBITDA Loss: The Company reported an Adjusted EBITDA loss of $39.4 million for the fourth quarter, representing an 7% improvement from the previous quarter.
- California: California retail revenue totaled $27.5 million for the fourth quarter. MedMen increased its total California retail license count to 17. Of these 17 retail licenses, 13 are operational as MedMen stores, including the recently opened MedMen Sorrento Valley location. The Company was also recently awarded a commercial retail license in Pasadena, California. MedMen expects to have a total of 30 operating retail locations in California by the end of calendar year 2020.
- Nevada: MedMen’s Las Vegas location on Paradise, the closest dispensary to the airport, became the Company’s second best-performing store across the U.S. MedMen’s flagship location in Highland, which is located near the Las Vegas Strip, is currently under construction.
- Florida: During the quarter, the Company opened its first retail location in the state with the opening of its West Palm Beach store. Florida is the third most populous state with a robust medical cannabis program serving over 200,000 qualified patients.
- Arizona: The Company continued to operate three retail locations in Arizona, through the acquisitions of Monarch and Level Up, which were both announced in Fiscal 2019. The stores are currently undergoing re-branding and expansion efforts in anticipation of potential regulatory changes in the state that would make Arizona a recreational market.
- Illinois: Through the acquisition of Seven Point earlier in the year, the Company currently operates a medical dispensary in Oak Park, Illinois.
- Massachusetts: The Company’s Fenway location is pending final regulatory approval and construction is anticipated to begin in calendar year 2020. In Newton, Massachusetts MedMen has signed a lease on a retail location and now is awaiting pending regulatory approvals.
- New York: The Company operates four medical dispensaries in the state, with a flagship location on Fifth Avenue near Bryant Park.
- Southern California: Following the close of a previously announced acquisition, MedMen added a flagship retail location in Long Beach situated strategically between its Santa Ana and LAX stores. The Company also opened a second San Diego retail location in Sorrento Valley. During the quarter, MedMen was also awarded one of six retail licenses available in the City of Pasadena.
- Northern California: MedMen continued to expand its Northern California retail footprint announcing plans to open a retail store in the city of Vallejo upon completion of a pending acquisition of a retail and distribution license. The Vallejo location will, when opened, be the Company’s fourth retail location in the area, joining existing locations in Emeryville, San Jose and Seaside.
- Illinois: On June 25, 2019, Illinois Governor J.B. Pritzker signed a landmark bill legalizing adult cannabis use in the state beginning January 1, 2020. This legislation bodes well for MedMen’s Oak Park location as well as assets to be transferred to the Company in Hillcrest, Evanston and the Greater Chicago area. Illinois is projected to be a $2 billion recreational cannabis market at maturity, per Marijuana Business Daily.
Capital Markets and Financing Activities:
- Credit Facility: In the fourth quarter, MedMen completed amendments to, among other things, eliminate trading price thresholds of the Class B subordinate voting shares necessary under the remaining tranches of the $250 million senior secured credit facility arranged by Gotham Green Partners. The Company is currently in active discussions with Gotham Green Partners to make additional amendments to the convertible debt facility to further align all parties given current market conditions.
- Equity Investment: Concurrent with the above-mentioned credit facility amendment, Gotham Green Partners, with participation from Wicklow Capital, made an additional $30 million equity investment in the Company.
Fiscal Year 2019 Review
- Revenue: Systemwide revenue for fiscal year 2019 increased to $130 million, up 227% from 2018.
- Gross Margin: Gross profit for fiscal 2019, before biological asset adjustment, was $56.5 million, as compared to $13.1 million in the previous year. Gross profit margin after biological asset adjustment was 47%, compared to 35% in the previous fiscal year.
- Adjusted EBITDA: MedMen reported an Adjusted EBITDA loss of $172.0 million for fiscal 2019, compared to an Adjusted EBITDA loss of $50.7 million in the previous year.
- Net Loss: Net loss was $277.0 million, with net loss attributable to shareholders of MedMen Enterprises $79.1 million or loss of $0.75 per basic and diluted share attributable to MedMen Enterprises shareholders for fiscal 2019, compared to a net loss of $113.9 million, with net loss attribute to shareholders of MedMen Enterprises $68.3 million or loss of $1.69 per basic and diluted share, for fiscal 2018.
- MedMen Delivery: MedMen’s fully owned and operated delivery platform was launched in California and Southern Nevada to provide customers access to quality cannabis and MedMen’s unparalleled retail experience from the comfort of their own homes. MedMen plans to roll out delivery from its Florida retail locations before year end. Total sales through e-commerce have surpassed $5 million in annualized revenue, with over 7,500 delivery transactions to date since the service first launched in August 2019.
- MedMen Buds: The Company announced its new loyalty program, MedMen Buds, in August 2019. In addition to having exclusive access to sales and discounts, loyalty members earn points for every purchase which can be redeemed for rewards. Currently, MedMen Buds is live in stores across Arizona, California, Florida, and Nevada with over 135,000 members enrolled to date.
- Continued Florida Expansion: Subsequent to year end, MedMen opened 6 additional Florida locations including in St. Petersburg, Key West, Pensacola, Jacksonville Beach, Central Orlando and Tallahassee. The Company anticipates opening five additional retail locations in the state by the end of 2019 bringing its total Florida store count to 12.
- M&A: On October 8, 2019, the Company announced the termination of its merger with PharmaCann. The cannabis sector evolved significantly from the initial announcement of the transaction and, with the current macro-environment and future strategic opportunities which exist for the Company, it became clear it was in the best interest of shareholders to terminate the deal. As part of the agreement to terminate, MedMen will forgive $21.0 million owed by PharmaCann under an existing line of credit, and PharmaCann agreed to pay a termination fee to MedMen through a transfer of the membership interest in three entities holding the following four assets: 1) an operational cultivation and production facility in Hillcrest, Illinois, 2) a retail location in Evanston, Illinois, 3) a retail license for Greater Chicago, Illinois, and 4) a license for a vertically integrated facility in Virginia.
- West Hollywood: The City Council of West Hollywood passed an ordinance to extend the Company’s temporary recreational retail license until January 1, 2021, unless otherwise determined. MedMen continues to work with West Hollywood City Council and various community groups on a long-term resolution.
- Management: The Company appointed Zeeshan Hyder as Chief Financial Officer, succeeding Michael Kramer on October 7, 2019. Mr. Kramer signed a consulting agreement with MedMen for the remainder of the calendar year.
Additional information relating to the Company’s fourth quarter and fiscal year 2019 results is available on SEDAR at www.sedar.com in the Company’s Annual Financial Statements and Management Discussion & Analysis (“MD&A”) for the quarter.
MedMen refers to certain non-IFRS financial measures such as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, less certain non-cash equity compensation expense, including one-time transaction fees and all other non-cash items) and four-wall retail gross margins. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers.
Please see the “Supplemental Information (Unaudited) Regarding Non-IFRS Financial Measures” at the end of the MD&A for more detailed information regarding non-IFRS financial measures.
CONFERENCE CALL AND WEBCAST:
MedMen Enterprises will host a conference call and audio webcast with Chief Executive Officer and Co-Founder Adam Bierman and Chief Financial Officer Zeeshan Hyder today at 5:00 pm Eastern to discuss the financial results in further detail.
A live audio webcast of the call will be available on the Events and Presentations section of MedMen’s website at: https://investors.medmen.com/events-and-presentations/default.aspx and will be archived for replay.