MedMen Reports Third Quarter Fiscal Year 2019 Financial Results
- Increased revenue sequentially by 22% to $36.6 million across the Company’s operations in California, Nevada, New York, Arizona and Illinois
- Including revenue from pending acquisitions and pre-closing revenue from recently closed acquisitions, pro forma quarterly revenue was approximately $57 million based on third quarter results
- Decreased corporate SG&A by 9% quarter-over-quarter with a plan to achieve an overall 20% reduction from previous quarter
- Continued to perform favorably in California with $24.9 million in retail revenue and retail gross margins increasing from 51% to 57%
- Announced $250 million financing commitment from Gotham Green Partners
LOS ANGELES, May 29, 2019–(BUSINESS WIRE)–MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF) today released its consolidated financial results for the third quarter of fiscal 2019. All financial information for the 13 week period ended March 30, 2019 is reported in U.S. dollars, unless otherwise indicated.
Management Commentary
Over the past nine years, MedMen has built the most valuable retail brand in the cannabis industry by taking advantage of the land grab opportunity and scaling with speed to secure as many flagship assets as possible.
Adam Bierman, MedMen co-founder and chief executive officer
We continue to march onward towards profitability. The biggest driver for this phase of the business remains revenue, which continues to increase significantly with new store openings and same store sales growth. Where we are impressively ahead of schedule is in leveraging our scale to create greater operational efficiencies across the organization. Execution keeps improving while corporate SG&A is decreasing.
Since going public one year ago, MedMen has established a track record of success, including achieving a 7% market share in California (inclusive of revenue from pending and pre-closing revenue from recently closed acquisitions), an $11 billion cannabis market. The Company is slated to open 15 new locations across the U.S. during the remainder of calendar 2019. Of the planned locations, 12 will be in Florida, where MedMen is licensed for up to 35 locations.
Third Quarter 2019 Overview
Financial:
- Revenue: Increased to $36.6 million for the quarter, which represents a 22% sequential increase over fiscal 2019 second quarter ended December 29, 2018
- Gross Margin: California retail gross margin increased from 51% to 57%, reflecting increased purchasing power and optimization of merchandising and supply chain management
- Corporate SG&A: Declined 9% from $40.9 million to $37.5 million, with an overall target reduction of 20% from the previous quarter
- Adjusted EBITDA Loss: Decreased 3% from $43.9 million to $42.6 million
Retail Highlights:
- California: Overall retail revenue increased sequentially by 5% during the quarter as the Company continues to hold a 7% market share in the state (inclusive of revenue from pending and pre-closing revenue from recently closed acquisitions). MedMen Beverly Hills reported the highest sequential growth rate among California stores at 13%
- Nevada: Overall retail revenue increased sequentially by 34% during the quarter. MedMen’s Las Vegas location on Paradise, the closest dispensary to the airport, is now the Company’s second best-performing store across the U.S.
- Arizona: Significant sequential growth, mainly attributable to M&A with two new stores in Tempe and Scottsdale
- Florida: The Company expects to open 12 additional locations during the remainder of calendar year 2019
Corporate Development:
- Southern California: Closed on acquisition of non-operational retail license in San Diego, which has subsequently opened as MedMen Sorrento Valley; closed on acquisition of ownership interests in MedMen-branded retail store in Santa Ana, which was previously managed by the Company, but owned by a third party
- Northern California: Closed on acquisitions of two cannabis retailers in Northern California – Buddy’s in San Jose and Sugarleaf in Seaside
- Arizona: Closed on acquisition of Kannaboost Technology Inc. and CSI Solutions LLC, collectively referred to as “Level Up” providing licenses for two vertically-integrated operations in Arizona, including retail locations in Scottsdale and Tempe and 25,000 square feet of cultivation and production capacity in Tempe and Phoenix
- Illinois: Closed on acquisition of Seven Point, a licensed medical cannabis dispensary located in the Chicago suburb of Oak Park, Illinois
Brand and Digital Strategy:
- Marketing: Launched the marketing campaign, The New Normal. At the center of the campaign was a short film directed by Academy Award winning Spike Jonze and starring actor Jesse Williams that chronicled the American history of cannabis
- Investor Website: Created a new enhanced investor relations website, which includes detailed information on the Company’s strategy, long-term vision and other infographics on Company operations
- Lifestyle: Introduced the Company’s first athleisure clothing collection available in stores and online ranging from graphic t-shirts, fleece hoodies and varsity jackets all incorporating the signature red MedMen logo
Capital Markets and Financing Activities:
- Credit Facility: Announced a senior secured convertible credit facility of up to US$250,000,000 from funds managed by Gotham Green Partners, an investor in the global cannabis industry
- Property Sales: Entered into sale-leaseback transactions with Treehouse Real Estate Investment Trust for three storefront properties and two cultivation and production factories with gross proceeds of approximately $72.0 million
Subsequent Events
Corporate Development:
- Southern California: Signed definitive agreement to acquire a retail operation in Long Beach, the third largest city in Southern California
Brand and Digital Strategy:
- House Brands: Test launched our value-oriented MedMen RED line in our Las Vegas stores
Corporate SG&A:
- Executive Compensation: As part of broader SG&A and profitability initiatives, Adam Bierman, chief executive officer, and Andrew Modlin, president, have entered into revised employment agreements with annual salaries of $50,000
Capital Markets and Financing Activities:
- Credit Facility: Closed on initial US$100,000,000 tranche of previously announced secured convertible credit facility with Gotham Green Partners
- ATM Program: Entered into an equity distribution agreement with Canaccord Genuity Corp. in respect of an “at-the-market” offering of subordinate voting shares for gross proceeds of up to C$60 million
Corporate Governance:
- Executive Chairman: Ben Rose, previous Chairman of the Board, transitioned to an Executive Chairman role, effectively immediately, where he will be more actively involved in the Company’s day-to-day operations
Third Quarter Fiscal Year 2019 Review
Consolidated:
For the third quarter of fiscal 2019, systemwide revenue was $36.6 million. This represents a 22% quarter-over-quarter increase over the fiscal 2019 second quarter ended December 30, 2018 and an 156% increase over the same quarter last year.
Gross profit for the third quarter of fiscal 2019, before biological asset adjustment, was $15.5 million, as compared to $13.3 million in the previous quarter. For the third quarter, gross profit margin after biological asset adjustment was 53.7%, compared to 53.2% in the previous quarter.
For the quarter, the Company reported an Adjusted EBITDA loss of $42.6 million, which decreased by 3% from the previous quarter. The Company reported a net loss attributable to the Company of $63.1 million, or loss of $0.20 per basic and diluted share attributable to MedMen Enterprises shareholders, for the third quarter of fiscal 2019, compared to a net loss of $64.6 million, or loss of $0.25 per share, for the second quarter of fiscal 2019.
Retail:
Systemwide retail revenue for the quarter increased by 16% to $34.6 million. This is based on 21 retail stores that were operational at the end of the quarter. The increase is primarily attributable to the Company’s operations in Nevada and Arizona. Despite the typical slowdown in retail sales post-holiday season, the Company recorded positive same-store sales growth.
The Company recorded 53% retail gross margins for the quarter, which is in line with the last quarter. However, retail gross retail margins for California were up from 51% to 57%, reflecting increased purchasing power and supply chain optimization. Retail EBITDA margins decreased from 16.6% to 12.5% for the quarter, reflecting lower margins in medical markets such as Arizona and Illinois and increase in payroll costs. The Company expects margins to increase in the next quarter.
Cultivation and Manufacturing:
For the quarter, the Company reported $4.7 million adjusted EBITDA loss for cultivation and manufacturing, of which approximately $4.3 million was related to costs associated with the Company’s Project Mustang facility in Nevada. These costs were expected during the ramp up period, and the Company expects to break-even by the end of the calendar year.
Corporate SG&A:
For the quarter, the Company recorded a 9% sequential reduction in corporate SG&A, contributing $37.5 million to adjusted EBITDA loss. The key drivers of the decrease were across marketing, legal and HR. The Company is targeting an overall 20% reduction in SG&A from the second quarter and expects the majority of cost savings to come from a decrease in corporate-level payroll.
Pre-Opening Expenses:
The Company incurred $4.6 million of pre-opening expenses in Q3, primarily driven by rent expenses of retail stores, cultivation/manufacturing sites and facilities that are not yet operational. This is up from $3.0 million in the previous quarter.
Additional Information
Additional information relating to the Company’s third quarter 2019 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 Chief Executive Officer and Co-Founder Adam Bierman and Chief Financial Officer Michael Kramer 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.
Calling Information:
Toll Free Dial-In Number: (844) 559-7829
International Dial-In Number: (647) 689-5387
Conference ID: 1895524
About MedMen:
MedMen is a cannabis retailer with operations across the U.S. and flagship stores in Los Angeles, Las Vegas and New York. MedMen’s mission is to provide an unparalleled experience that invites the world to discover the remarkable benefits of cannabis because a world where cannabis is legal and regulated is a safer, healthier and happier world.
Learn more at www.medmen.com
