Medmen Announces Layoffs, Divestment of Assets, Focus on SG&A Reduction

Medmen Enterprises (CSE: MMEN) will be the next cannabis firm to conduct layoffs in the sector, with over 190 employees expected to be let go. The lay offs are part of an effort for the firm to reign in its selling, general, and administrative expenses to under $85 million per year. Last year, Medmen spent $244.0 million on general and administrative expenses, and $27.5 million on sales and marketing.

The layoffs announced after hours by Medmen are part of a larger plan to reduce expenditures wherever possible. Of the over 190 employees to be let go, at least 80 of them are expected to be in corporate roles. The result will be a 20% reduction in corporate employees, while the total reduction will result in annualized savings of $10 million. The firm indicated that its a necessary evil required to position the company for future growth and achieving EBITDA positivity.

Marketing and technology spend will also be reduced by $20 million per annum, while ancillary costs – such as insurance policies for healthcare – will also be reduced or outsourced where possible for additional savings.

In addition to layoffs that are being conducted, Medmen will be realigning its focus to its core business and divesting of its non-core assets. As a direct result of this decision, the firm will be selling its interest in Treehouse REIT for net proceeds of $14 million, of which half has already been received. Investment in non-recreational states will also be limited, with medical markets such as New York and Arizona seeing delayed investment. New store openings will be limited to locations that are forecast to generate $10 million or more in revenues within the first 12 months of opening.

Medmen will also be divesting licenses in non-core markets and selling any interest it has in outside brands. Minority brand investments are expected to deliver $8 million in proceeds, while no figure was provided for non-core markets. The firm however will be realigning to focus on the major centers such as LA, Las Vegas, Miami, and Chicago due to potential benefits in brand creation mixed with market demand.

A focus on cash outlays has also been taken, with Medmen postponing buildouts and expansions of retail stores in non-core locations, saving the firm $55 million in the near term. A $15 million cash earn-out under a larger merger transaction was also reduced to being a $10 million stock payment, while future M&A activity will be slowed down to only focus on highly accretive transactions within California and Nevada.

Lastly, performance incentives will be aligned with being heavily share based, and heavily weighted towards company-level EBITDA targets. Corporate offices split across Los Angeles will also be consolidated to reduce rental expenses and to promote team building.

The changes announced are anticipated to result in positive EBITDA for Medmen by the end of calendar year 2020.

Medmen Enterprises last traded at $1.30 on the Canadian Securities Exchange.


Information for this briefing was found via Sedar and MedMen Enterprises. The author has no 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.

Jay

As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive's stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.

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