Mr. Adam Bierman reports
MEDMEN REPORTS FIRST QUARTER FISCAL 2020 FINANCIAL RESULTS
Medmen Enterprises Inc. has released its consolidated financial results for the first quarter 2020 ended Sept. 28, 2019. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.
Management commentary
"We entered fiscal 2020 on a mission to build a more nimble and financially flexible Medmen," said Adam Bierman, Medmen co-founder and chief executive officer. "As we rightsize our organization and implement an intensified focus on free cash flow generation, our business will become more efficient, in turn allowing us to better serve our stakeholders. Through the successful execution of these goals, we expect Medmen will be EBITDA [earnings before interest, taxes, depreciation and amortization] positive by the end of calendar year 2020."
"Since 2016, Medmen has aggressively executed on a plan to become the most recognizable brand in cannabis. The company's focus on profitability will provide greater flexibility to navigate near-term market fluctuations, as they continue to capitalize on the sector's overall opportunity. We have supported the business since 2016 and are supportive of the vision going forward," said Ben Rose, executive chairman of the board and chief investment officer of Wicklow Capital.
First quarter fiscal 2020 review
Financial:
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Revenue: Systemwide revenue across Medmen's operations in California, Nevada, New York, Illinois and Arizona increased to $44.0-million for the quarter, up 105 per cent year over year and 5 per cent sequentially.
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Gross margin: Gross margins across retail operations were 52 per cent compared with 50 per cent in the prior quarter. The increase in gross margins reflects increased leverage with suppliers and favourable vendor terms.
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Corporate SG&A (selling, general and administrative): Corporate SG&A totalled $30.6-million, a 21-per-cent decrease from fiscal second quarter 2019, representing $31.6-million in annualized savings since the initial cost-cutting efforts began.
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Adjusted EBITDA loss (defined as earnings (loss) before interest, taxes, depreciation and amortization, less certain non-cash equity compensation expense, including one-time transaction fees and all other non-cash items): The company reported an adjusted EBITDA loss of $22.2-million for the quarter. Approximately $7.4-million of rent expense was not included in adjusted EBITDA for the quarter due to the application of international financial reporting standard 16 (Leases). Adjusted EBITDA loss under the previous methodology would have been $29.6-million compared with a $39.4-million loss in the previous quarter.
Retail highlights:
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California: California retail revenue totalled $30.0-million for the first quarter, representing a 9-per-cent sequential increase from the previous quarter. In California, Medmen has 17 retail licences, 13 of which are operational as Medmen stores.
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Nevada: Medmen's Las Vegas location on Paradise, the closest dispensary to the airport, remains the company's second best-performing store across the United States.
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Florida: During the quarter, the company opened three locations in Florida, which include retail stores in St. Petersburg, Key West and Pensacola.
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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.
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Illinois: Through the acquisition of Seven Point earlier in the year, the company currently operates a medical dispensary in Oak Park, Ill. Due to regulatory changes and the termination of the PharmaCann transaction, the company expects to have four operational recreational stores in Illinois during calendar 2020.
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Massachusetts: The company's Fenway location is pending final regulatory approval, and construction is anticipated to begin in calendar year 2020. In Newton, Mass., Medmen has signed a lease on a retail location and now is awaiting pending regulatory approvals.
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New York: The company operates four medical dispensaries in the state, with a flagship location on Fifth Avenue near Bryant Park.
CPG highlights:
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Nevada factory, Mustang: The ramp-up of Medmen's Nevada manufacturing and cultivation facility continues to progress with the factory generating positive EBITDA for its first quarter ever. The factory is expected to be at full capacity by the second quarter of calendar year 2020. In the past eight weeks, [statemade] was the highest-selling preroll brand at Medmen stores across Nevada. In addition to its in-house brands, the company executed licensing deals with leading cannabis brands, Platinum Vape and Nature's Lab, for manufacturing and distribution in the state.
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California factory, Desert Hot Springs: Medmen anticipates its manufacturing and cultivation facility in California will be operating at full capacity in the first half of calendar 2020. As of November, 2020, the company's [statemade] brand is officially available throughout California and was the highest-selling preroll brand at the downtown Los Angeles, Abbot Kinney and Beverly Hills locations.
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Florida factory, Eustis: Medmen is in the process of expanding its manufacturing and cultivation facility in Florida to keep up with the growth of its retail footprint in the state, which currently includes eight locations.
Technology highlights:
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Delivery: On Aug. 19, 2019, the company announced the launch of its same-day delivery in California. The platform expands Medmen's omnichannel experience by offering customers best-in-class production selection with expedited delivery times.
On Nov. 15, 2019, the company announced that the delivery platform had exceeded $6-million in annualized run-rate revenue.
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Loyalty program: Earlier in the year, the company furthered its commitment to its customers by launching a first-of-its-kind loyalty program, called Medmen Buds. As of today, the company had enrolled over 170,000 members into its loyalty program.
Plan to achieve positive EBITDA:
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On Nov. 15, 2019, the company announced a five-part plan to achieve positive EBITDA by the end of calendar 2020. The 90-day plan includes: (1) focusing on core markets while divesting non-core assets; (2) reducing corporate SG&A; (3) driving asset-level EBITDA; (4) limiting cash outlays for the next 12 months; and (5) reinvesting in the company's employees and culture.
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As part of this corporate rightsizing, the company initiated the process of laying off 190 employees, including over 80 corporate-level employees, which combined comprised 20 per cent of the total employee base. The layoffs once complete are anticipated to achieve $10-million in annual cost savings.
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Additional cost savings: $20-million in annual savings through reductions in marketing and technology spend; at least $2-million in annual savings through renegotiated insurance policies for health care, D&O and property.
Subsequent events:
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Credit facility: As part of the amendment to the company's $250-million senior secured credit facility, Gotham Green Partners has an obligation to finance the $10-million tranche by Nov. 29, 2019.
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Continued Florida expansion: Post the quarter-end, Medmen opened four additional stores in Florida, comprising Jacksonville Beach, Central Orlando, Tallahassee and Sarasota, bringing the company's total state store count to eight retail locations.
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Transfer of assets in Illinois and Virginia: On Oct. 8, 2019, the company announced the termination of its business combination agreement with PharmaCann. 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 interests in three entities holding the following four assets: (1) an operational cultivation and production facility in Hillcrest, Ill.; (2) a retail location in Evanston, Ill.; (3) a retail licence for greater Chicago, Ill.; and (4) a licence for a vertically integrated facility in Virginia. The transfer of the Virginia licence closed on Oct. 18, 2019, and the transfer of the Evanston licence is anticipated to close on Dec. 2, 2019.
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Sale of interest in Treehouse REIT: The company recently sold its stake in the manager of Treehouse REIT, the first ever cannabis-focused real estate investment trust to target both cannabis retail and cultivation/manufacturing operations, for net proceeds of $12.5-million.
Additional information
Additional information relating to the company's first quarter 2020 results is available on SEDAR in the company's interim financial statements and management's discussion and analysis for the quarter.
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 p.m. Eastern Time to discuss the financial results in further detail.
Webcast information
A live audio webcast of the call will be available on the events and presentations section of Medmen's website and will be archived for replay.
Calling information
Toll-free dial-in number: 844-559-7829
International dial-in number: 647-689-5387
Conference ID: 7253627
About Medmen Enterprises Inc.
Founded in 2010, Medmen is North America's premium cannabis retailer. Founders Mr. Bierman and Andrew Modlin have defined the next-generation discovery platform for cannabis and all its benefits. A robust selection of high-quality products, including Medmen-owned brands [statemade], LuxLyte and Medmen Red, coupled with a team of cannabis-educated associates, cements the company's commitment to providing an unparalleled experience. Medmen's industry-leading technology enables a fully compliant, owned and operated delivery service, and Medmen Buds, a nationwide loyalty program.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts expressed in U.S. dollars unless otherwise stated)
13 weeks ended Three months ended
Sept. 28, 2019 Sept. 30, 2018
Revenue $43,974,745 $21,460,195
Cost of goods sold 22,150,013 9,809,333
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Gross profit before fair value adjustments 21,824,732 11,650,862
Realized fair value of inventory sold (10,997,772) -
Unrealized gain on changes in fair value of biological assets 6,386,921 (1,947,936)
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Gross profit 17,213,881 9,702,926
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Expenses
General and administrative 49,066,463 65,739,450
Sales and marketing 5,783,728 4,800,233
Depreciation and amortization 11,280,064 2,450,320
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Total expenses 66,130,255 72,990,003
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(Loss) from operations (48,916,374) (63,287,077)
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Other expense (income)
Interest expense 11,618,049 2,410,032
Interest income (369,342) -
Amortization of debt discount and loan origination fees 2,931,805 58,758
Change in fair value of derivatives (132,895) (773,929)
Unrealized gain on changes in fair value of investments (11,480,321) -
Unrealized loss on changes in fair value of contingent consideration 2,743,443 -
Other expense 20,438,042 105,627
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Total other expense 25,748,781 1,800,488
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(Loss) before provision for income taxes (74,665,155) (65,087,565)
Provision for income taxes 7,970,304 1,408,658
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Net (loss) and comprehensive (loss) (82,635,459) (66,496,223)
Net (loss) and comprehensive (loss) attributable to non-controlling interest (51,159,144) (54,018,293)
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Net (loss) and comprehensive (loss) attributable to shareholders of
Medmen Enterprises (31,476,315) (12,477,930)
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(Loss) per share -- basic and diluted,
attributable to shareholders of Medmen Enterprises (0.16) (0.27)
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We seek Safe Harbor.
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