MedMen MMNFF Stock – is it time to buy?

MedMen MMNFF Stock is a stock that I have wondered if they would make it.  I got an email from a follower/subscriber asking what he should do with this particular holding.  Truth is, I had not looked at MedMen in some time so, was curious as to what was going on.  If you simply look at their assets/over liabilities, one would say it is time to tap out.  But, MedMen still has sufficient access to capital, that lifeline a desperate company would need.  MedMen has recently done two capital raises; one for $10M and then another for $100M.  This is substantial for MedMen simply because this will give them the necessary capital to move forward.

Another development for MedMen was Tilray’s recent acquisition of the senior secured debt.  When that first came across my screen I sort of wondered if there was a pending bankruptcy about to happen.  The thing is, senior secured debt is debt against assets the company has.  And, it is secured by these assets while simultaneously, the debt is senior in the sense that it comes first in a bankruptcy.  I actually thought Tilray TLRY stock was going to force MedMen into bankruptcy in order to acquire the company out of bankruptcy on a dime.  But, the recent capital raise makes it so that this would not be possible.

So, if you are a “bag holder” of MedMen MMNFF stock, what does one do?

MedMen MMNFF Stock Comparison

Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:

• #25 Market Cap: $195M
• #12 Revenue Growth Rate: 52.2%
• #39 Gross Margins: 44.1%
• #48 Operating Efficiencies: 86.3%
• #54 EBITDA/Revenue: -25.1%
• #82 Cash/Debt Ratio: 3.4%
• #99 Total Assets -$222M

As it turns out, MedMen is not the worst out there despite being where they are.  Still, you will notice the very bottom of the listing of -$222M in total assets.

One thing to point out, however, is that I am using the latest financial data.  I h ave not included certain data points regarding the latest moves by the company to raise capital. One would need to make adjustments in the cash and debt numbers.

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MedMend MMNFF Stock Financial Data

Some of MedMen’s financial data are just on the cusp of getting there.  Revenues are looking interesting.  But, margins are still a little shy.  It might not be too long until they start to improve, however.

Revenue

For MedMen, revenue is a bright spot as they have turned a corner and are starting to increase to record levels:

This is a 50% increase for the quarter.  The entire industry, the 99 stocks I follow that are publicly traded and report financial data with regularity, this is a big gain for a company putting them  nearly in the top 10 for revenue gains QoQ.

The entire industry about 7.5% on average for each quarter.  If MedMen were to continue at that pace, the industry average then in 1 year’s time revenues will likely be near $65M per quarter.  Given the increase in revenue gains, with marginal costs & profits being considered, MedMen would easily achieve EBTIDA profitability.

Gross Margins

Dispensaries are usually pretty consistent when it comes to gross margins. They deal with fairly consistent costs and customer flow:

Consistent with dispensaries, gross margins are in a fairly tight range.  And, if MedMen can now finally start performing better then possibly gross margins will increase.  In the example above, given a modest 7.5% increase in revenue each quarter over the next four quarters, if MedMen were to hit $65M in four more quarters it is very likely that gross margins will improve.

If on $65M MedMen hits 60% gross margins, this translates into $39M in gross profits.  Currently, with $48.7M MedMen printed $21.6M in gross profits.  The extra $17.5M would easily trickle downward to EBITDA profitability.

Operating Efficiencies

MedMen continues to cut costs and, on a relative basis, operating efficiencies are improving:

Total operating expenses are sitting around $40M.  Given the potential of an increase to $65M on a quarterly basis, this puts operating efficiencies at 60% of total revenue, which would not be enough to get MedMen to profitability, but they would hit EBITDA profitability.

In my scenario above, cost of goods are at 40%.  With 60% in operating costs, this is 100% of revenue going to the production and operational costs.  And, I also put operating costs at a fixed amount at 40%.  If revenues increased then, very likely, operating costs would go higher.  Still, this scenario does show that there is some potential and momentum.

Also, something to keep in mind is Tilray.  Tilray is stating that they are going to print about $4B in 2024.  If there is some kind of partnership that MedMen continues to expand with Tilray, very likely there will be increased revenue from that as Tilray will start pushing their own products through MedMen’s dispensaries.  Tilray will also be doing marketing and that may draw in more customers through into the dispensaries.  So, likely, my 7.5% growth rate, QoQ, may be modest and it may be that there is a bigger potential.

I see the Tilray story as a developing and continuing story.

EBITDA Profits

As I outlined above, MedMen is outside of the EBITDA profit range but, they are getting closer assuming the momentum continues:

In their latest statements, MedMen management stated that they achieved Adjusted EBITDA profitability.  I’m using unadjusted numbers and I do so throughout the website analysis.  So, my numbers do not jive with the consistency that management is focused upon.  Nonetheless, my bet is that EBTIDA profitability will be achieved very soon.  That is momentum that could be an interesting story.  With EBTIDA profitability, if MedMen continues to earn business and get organic growth in its dispensaries, eventually, this will transition the business moving forward.

Net Earnings

MedMen took a large hit for this quarter with total net earnings:

Continuing earnings were -$20M and total earnings, were some -$40M. Net interest expense appears to be coming in about $20M per quarter, on average.  Given the numbers above, if MedMen were to hit that $65M in the quarter, they could feasibly have break-even operating costs (Getting MedMen to EBTIDA positive), but still be losing approximately $20M from continuing costs.

Scaling up beyond that will mean needing to about $100M in revenue.  If MedMen were to do that, achieve approximately 40% in cost of goods (For gross margins of 60%), an additional 35% in operating costs, and 20% in continuing costs, MedMen would achieve a 5% net earnings rate.

This is plausible and doable.  And, if MedMen could achieve the $65M in four quarters then they would achieve profitability with a continued growth rate.

But, will MedMen be able to consistently achieve increased revenues quarter after quarter?

Cash On Hand

As I mentioned, my numbers here are from the latest financial results and do not include the recent $110M in capital raise:

Given the extra $110M, plus the $14.9M, at the end of the quarter, if MedMen loses its average amount they should be printing approximately $105M remaining with cash on hand.  The burn rate will start to decline as MedMen continues to improve its positions.

Cash Debt Ratio

As for the debt rate and the cash on hand, the ratio is very low and despite the $110M that was raised, MedMen needs to see capital increase:

Again, the $110M is not in this equation.  But, despite that the current cash:debt ratio is still way too low.  This is dilutive.  I am really interested in seeing what happens next with Tilray and MedMen, and this is a metric that would need to be addressed.

Total Equity

Even with the recent $110M capital raise, it is still far too little to get the recent numbers above water:

Once MedMen prints its next numbers, total assets will be cut in half from its negative position.  But, it will still be well below water.

MedMen MMNFF Stock Chart

As I mentioned, I am very interested in the next move by Tilray and if there is continued movement higher in revenue, possibly MedMen MMNFF stock could start to move higher:

As it is turning out, as I write this, most of the bigger players in the industry are seeing their stock prices dwindle.  It seems that there is no love affair with profits from cannabis stocks.  I expect that MMNFF stock will start to trickle lower along with the rest of the industry.

Is MedMen MMNFF Stock a Good Investment?

MedMen is finally on its way to seeing the light at the end of the tunnel.  But, there is still work to be done.  It may take about 2.5 years before MedMen is truly profitable.  So, it is difficult to really jump on this when it is easy for me to pick out some 20 other cannabis stocks that are actually profitable right now.

But, the Tilray move is really interesting to me and I expect that since Tilray is proving they want to really commit to growth and expansion, MedMen could very easily get acquired along the way.  That would certainly be positive news.  And, with the path that MedMen is on, profitability is achievable.  But, without Tilray, it may be that MedMen has to do an additional capital raise.   That is dilutional for shareholders.

I can see the light at the end of the tunnel, but, I would likely pass on this as there are better options to invest in.  Still, MedMen is getting interesting.

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