After Medmen Enterprises’ (CSE: MMEN) fourth-quarter results dropped after hours on October 15th, Canaccord downgraded Medmen’s 12-month price target to $0.00 while reiterating their sell rating on the company. Commenting on the price target downgrade, Canaccord stated, “we believe MMEN’s value at this time is more likely to accrue to existing secured lenders.”
Matt Bottomley headlines the report with, “FQ4/20: Turnaround prospects fade as revenues take a significant hit with path to profitability hampered.”
Medmen’s revenue came in at U$27.4 million, a 40.3% decrease quarter over quarter, and almost half of Canaccord’s estimate of U$43.5 million. Bottomley says these results “cast significant doubt on the
company’s ability to execute its turnaround strategy to reach profitability and/or be able to meet its longer-term capital obligations.”
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The reason for the massive revenue drop was due to reduced foot traffic in tourist markets of Los Angeles and Las Vegas, a mandated store closured in Nevada, and looting due to COVID-19 and civil unrest.
Revenues in California’s primary market declined by 50% quarter over quarter, which was on the back of a 9% drop last quarter. Management did note that they believe revenues would rebound to U$37.4 million, a figure that is still roughly 20% below its prior period. Bottomley says he considers “the ability for the company to navigate its way to profitability is in serious jeopardy – particularly if COVID-19 headwinds continue to steepen.”
The company booked an impairment charge of U$240 million related to its cultivation and manufacturing facilities in multiple states. Matt see’s Medmen’s operational loss to be concerning given its horrible balance sheet.
Speaking of the horrible balance sheet, Bottomley states,, “We still believe the need for additional capital is fairly immediate” and “we believe the ability for the company to execute on its stated objectives (organic growth, new store openings, etc.) and/or satisfy its longterm debt to be at considerable risk.” The company ended the quarter with U$10 million of cash on hand. This does not include a U$20 million commitment from lenders, U$5 million from a convertible debenture financing, and U$10 million from selling a retail license.
Bottomley has reduced its fiscal year 2021 estimates downwards. They now forecast revenue to be U$197.2 million compared to the prior estimate of U$303.4 million. Adjusted EBITDA is estimated to be (U$41.9) million, which was previously U$10.7 million.
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
