Medmen Enterprises (CSE: MMEN) dropped a bombshell of a news release this evening, highlighting several key changes being made at the firm as a result of securing additional financing. Key among the changes are a further reduced annual selling, general, and administrative expenses target, an additional 20% reduction in workforce, additional financing, and delayed loan maturities, along with certain super voting shares held by a co-founder being granted proxy.
First and foremost, Medmen Enterprises has reduced its annual selling, general and administrative, or SG&A spend targets to that of US$65 million, down from the previous target of $85 million in annualized spend iterated in November. Medmen has provided a target of the fiscal third quarter of 2020, which is ambitious given its latest financials reported SG&A expenses of $66.1 million for a single quarter. The firms fiscal third quarter ends at the end of March.
This target is being met by none other than terminating an additional 20% of its corporate workforce, with the firm providing lay off notices to all affected employees only two weeks before the holidays. Corporate headcount as a result has been reduced by approximately 40% of the last 30 days, providing $20 million in annualized savings. The best part of this however, is that one of the associated risks outlined at the bottom of the news release states, “the reduction in headcount does not result in long term reduction in SG&A due to needs to engage outside consultants or advisors,” meaning Medmen is unclear on just how much these roles are needed at the firm, and that its uncertain the move will actually reduce its SG&A.
To provide further liquidity for the firm, Medmen executed a term sheet of $27 million yesterday, at a price of US$0.43 per common share, equivalent to roughly C$0.57 per share. The financing was conducted through Wicklow Capital, as well as a new undisclosed investor. The arrangement is expected to close December 18. The firm also closed a financing for $10 million, via a tranche of the ongoing financing arrangement with Gotham Green Partners on November 27, 2019.
Also assisting the liquidity concerns of Medmen, is a loan that has seen its maturity date pushed out by a year. Referred to as the “October 2018 Loan”, the loan will see its maturity date extended from October 1, 2020, to that of January 31, 2022. Having the maturity date pushed out by sixteen months however, comes with a heavy price. Chief among the amended terms is the following:
- Annual interest rate increase from 7.5% to 15.5%, which “reflects current market conditions.” 12.0% of the interest will be paid monthly via cash, while 3.5% will accrue on the outstanding principal figure as payment-in-kind.
- 16,211,284 warrants at US$4.97, and 1,023,256 warrants at US$4.73 initially issued with the financing will be cancelled.
- 40,455,729 warrants with an exercise price of US$0.60 will be issued, representing 31% coverage of the loan. The new warrants will be exercisable until December 31, 2022.
Guidance for fiscal 2020 and fiscal 2021 was also provided by Medmen Enterprises in this evenings release, with the firm breaking down the guidance on a state-by-state basis as a result of the firm currently holding certain assets for sale. If one takes the time to read the fine print related to guidance, it’ll stand out that the provided figures are based on same-store growth of 25% year over year. Guidance is as follows.
| System-Wide Revenue ($US M) | FY 2020 Guidance | Stores at EOY | FY 2021 Guidance | Stores at EOY |
| California | $140 – $148 | 14 | $260 – $280 | 20 |
| Nevada | $28 – $30 | 3 | $40 – $45 | 3 |
| Illinois | $21 – $25 | 3 | $50 – $55 | 4 |
| Arizona | $16 – $18 | 3 | $20 – $22 | 3 |
| Florida | $12 – $14 | 9 | $40 – $45 | 18 |
| New York | $8 – $10 | 4 | $10 – $13 | 4 |
| Massachusetts | — | — | $30 – $40 | 2 |
| Total | $225 – $245M | 36 | $450 – $500M | 54 |
Finally, co-founder Andrew Modlin has granted the executive chairman of Medmen Enterprises, Ben Rose, limited proxy on 815,295 Class A Super Voting Shares, which represents 50% of the entire share class. It’s unclear what direct purpose this serves, aside from a showing of “corporate governance.” It’s unclear what lead Modlin, and not Bierman, to conduct such an arrangement.
Medmen Enterprises last traded at C$0.57 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.
