MedMen Reports Second Quarter Fiscal 2020 Financial Results – Designated News Release
- Second quarter revenue of $44.1 million (excluding Arizona), up 50% year over year and 11% sequentially
- Opened five new retail locations during the quarter, including four in Florida and one in Illinois
- Corporate SG&A decreased by 11% sequentially and 30% from the prior year period
- Company appointed new board of director members, including Cameron Smith, former US Securities
- Exchange Commission Officer and Mel Elias, former President and CEO of The Coffee Bean & Tea Leaf
- Announces sale of non-core Illinois cultivation license for total gross proceeds of $17 million
LOS ANGELES, Feb 26, 2020–(BUSINESS WIRE)–MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF) today released its consolidated financial results second quarter 2020 ended December 28, 2019. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.
Management Commentary
“We feel positive about the progress made while remaining aware there is still substantial work to be done. The business is focused on the execution of a strategy to streamline operations, strengthen its balance sheet and bring in additional capital. The sustained power of the brand and consistent consumer loyalty is a regular reminder of our strengths and the opportunities within reach,” said Ben Rose, executive chairman of the Board and Chief Investment Officer of Wicklow Capital.
This is a pivotal time for the Company where we have the opportunity to re-assess the business and narrow the focus on what we do best – retail, to continue to cut costs and to execute on four-wall economics with a path to profitability.
Ryan Lissack, Interim Chief Executive Officer
I look forward to transitioning the company into its next chapter, which will be defined by financial discipline and strategic growth to drive long-term value creation for the Company and its stakeholders.
Second Quarter Fiscal 2020 Review
Financials:
- Revenue: Systemwide revenue across MedMen’s operations in California, Nevada, New York, Illinois and Florida increased to $44.1 million for the quarter, up 50% year-over-year and 11% sequentially. Revenue figures do not include the Company’s operations in Arizona, which are in the process of being divested and are classified as discontinued operations in the Company’s financials.
- Retail Gross Margin: Gross margins across retail operations were 51% compared to 52% in the prior quarter. In California, retail gross margin was 52%, compared to 53% in the previous quarter.
- Corporate SG&A: Corporate SG&A totaled $26.8 million, a 30% decrease from fiscal second quarter 2019, representing $46 million in annualized savings since the initial cost-cutting efforts began. The Company revised its corporate SG&A target to an annualized run-rate of $65 million to be achieved by MedMen’s fiscal third quarter 2020.
- Adjusted EBITDA: The Company reported an Adjusted EBITDA loss of $35.1 million for the quarter. The Adjusted EBITDA for the quarter does not include additional headcount reduction and retail optimization efforts the Company executed on subsequent to the quarter end. The Company’s cultivation and manufacturing facilities contributed to $11.4 million of the total EBITDA loss.
- California Retail EBITDA: Across its California retail footprint, the Company recorded a four-wall EBITDA margin before local taxes and distribution expenses of 16%, compared to 17% in the previous quarter.
Retail Highlights:
- California: California retail revenue totaled $32.4 million for the second quarter, representing an 8% sequential increase from the previous quarter, and 37% increase from the same period last year. On a same-store basis, California retail stores are up 16% from the same period last year. The Beverly Hills, Santa Ana, LAX, Abbot Kinney and Downtown Los Angeles locations were up 43%, 43%, 40%, 30% and 30%, respectively, compared to the same period last year.
- Nevada: Nevada retail revenue totaled $5.9 million for the second quarter, representing a 10% sequential increase from the previous quarter, and a 75% increase from same period last year. MedMen Paradise, the Company’s flagship store in Las Vegas, recorded a 10% sequential revenue increase. The store was not open for the full second quarter 2019 for a year-over-year comparison.
- Florida: During the quarter, the Company opened four locations in Florida, which include retail stores in Jacksonville Beach, Orlando-International Drive, Tallahassee and Sarasota. The Company operates a total of eight stores across the state. The Company is currently undergoing a strategic review of its Florida footprint to determine timing of additional store openings.
- Illinois: The Company began operating its second store in Illinois, located in Evanston, on December 3, 2019. Both the new Evanston store and existing Oak Park store are currently serving recreational customers. The Company expects to have a total of four stores in Illinois by end of calendar year 2020.
- 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 regulatory approvals.
- New York: The Company operates four medical dispensaries in the state, with a flagship location on Fifth Avenue near Bryant Park.
- Arizona: The Company is currently in the process of divesting its Arizona footprint, which includes three retail locations and various cultivation and manufacturing operations.
Capital Markets and Financing Activities:
- Credit Facility: On November 27, 2019, the Company closed on $10 million of additional funding under Tranche 3 of the existing facility with Gotham Green Partners and its affiliates. As part of the amendments which were executed along with the funding, additional changes were made to the facility to provide greater flexibility to the Company.
- Equity Investment: On December 27, 2019, the Company announced that it signed definitive documentation for its offering of Class B subordinate voting shares for aggregate gross proceeds of $20 million at a price per share of $0.43. Closing of the equity placement occurred in January 2020.
Corporate Governance:
- On December 10, 2019, Co-Founder Andrew Modlin granted Ben Rose, Executive Chairman of the Board, a limited proxy in respect of 815,295 Class A Super Voting shares, which represented 50% of the total Class A Super Voting Shares for a period of one year. Such proxy may not be used to eliminate or change the rights of such shares or otherwise alter or amend the organizational documents of the Company.
- Effective February 1, 2020, Adam Bierman, Co-Founder and Chief Executive Officer stepped down as Chief Executive Officer and agreed to surrender his Class A Super Voting shares. The board of directors named the Company’s Chief Technology Officer, Ryan Lissack, as Interim Chief Executive Officer. Following expiration of the limited proxy granted by Andrew Modlin to Ben Rose, MedMen will only have one class of outstanding shares, Class B subordinate voting shares, each of which entitle the holder to one vote.
Subsequent Events:
- Definitive Agreement on 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 (“Hillcrest Facility”) for total gross proceeds of $17 million (“Hillcrest Transaction”). The Company previously received the right to acquire the Hillcrest Facility as part of its merger termination agreement with PharmaCann, LLC (“PharmaCann”). As part of the Hillcrest Transaction, the Company received an initial payment of $10 million (the “Initial Payment”). The second payment of $7 million is due prior to the closing of the Hillcrest Transaction, expected in the coming weeks.
- MedMen 2020 Annual General Meeting Results: The Annual General Meeting of MedMen shareholders was held on February 21, 2020 in Toronto, Canada under Executive Chairman, Ben Rose. Shareholders adopted all the resolutions submitted for approval. Shareholders re-elected Ben Rose, Adam Bierman and Jay Brown to the Board of Directors and added new members Mel Elias, Cameron Smith, and Chris Ganan. MNP LLP was re-appointed as the auditors of the Company.
- Secured Term Loan Amendment: On January 14, 2020, the Company announced the execution and closing of definitive documentation for amendments to the terms and conditions of the $78 million senior secured term loan with funds managed by Stable Road and its affiliates.
New Independent Board Members:
- Mel Elias: Mr. Mel Elias, an active investor, entrepreneur and developer in Los Angeles has past and present board experience in CPG and consumer retail businesses both in the US and internationally. He was President and CEO of The Coffee Bean & Tea Leaf for 6 years, until it was sold in 2013.
- Cameron Smith: Mr. Cameron Smith currently operates a private angel investment and advisory fund that focuses on health food. Prior to his investment and advisory business, Mr. Smith was General Counsel of The Island ENC, Inc., President of Quantlab Financial and worked at the SEC.
ADDITIONAL INFORMATION
Additional information relating to the Company’s fiscal second quarter 2020 results is available on SEDAR at www.sedar.com in the Company’s Interim 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 this press release and 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 Executive Chairman, Ben Rose, Interim Chief Executive Officer Ryan Lissack and Chief Financial Officer Zeeshan Hyder today at 5:00 pm Eastern 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 at: https://investors.medmen.com/events-and-presentations/default.aspx 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: 8898600
ABOUT MEDMEN:
MedMen is North America’s premium cannabis retailer with flagship locations in Los Angeles, Las Vegas, Chicago and New York. Through a robust selection of high-quality products, including MedMen-owned brands [statemade], LuxLyte and MedMen Red, and a team of cannabis-educated associates, MedMen has defined the next generation discovery platform for cannabis and all its benefits. MedMen’s industry-leading technology enables a fully compliant, owned-and-operated delivery service and MedMen Buds, a nationwide loyalty program. MedMen believes that a world where cannabis is legal and regulated is safer, healthier and happier. Learn more at www.medmen.com
