MedMen Secures Further Funding From Gotham Green Partners

MedMen Enterprises Inc. (CSE:MMEN) has returned to the trough with Gotham Green Partners as expected, however this time things are a bit different. The company this morning announced amended terms to the previous financing that consists of up to US$250 million, including the expansion of the agreement to US$280 million.

As The Deep Dive previously reported, MedMen Enterprises was in significant trouble with respect to cash flow. The firm has been burning cash at a rate of $18.77 million per month as of the last financials, meaning that little time is left for the company to right the ship and significantly reduce expenditures.

It appears that rather than reduce expenses, MedMen would instead prefer to return to the trough. As a result, the agreement with Jason Adler’s Gotham Green Partners has been amended so that the company is able to draw more cash from the investor.

The changes include the following, as per the news release:

  • the trading price thresholds in respect of the Class B subordinate voting shares of the Company (the “Subordinate Voting Shares”) in order to access Tranche 2 and Tranche 3 of the Facility will be eliminated, giving the Company full access to the US$250,000,000 Facility.
  • the conversion price per share of the senior secured convertible notes (“Notes”) in the aggregate principal amount of US$100,000,000 co-issued by the Company and MM CAN USA, Inc., a subsidiary of the Company, pursuant to Tranche 1 of the Facility will be changed from US$3.29 to US$2.55, which represents a 12% premium over the Company’s 20 trading day VWAP as of July 8, 2019.
  • the method for calculating the conversion price per share of the Notes issuable pursuant to Tranches 2 and 3 of the Facility (which are each in the principal amount of US$75,000,000 and which have not yet been issued), will be changed from being equal to:
    • the lesser of (i) 115% of the 20 trading day volume weighted average trading price (“VWAP”) of the Subordinate Voting Shares as of the trading day immediately preceding the date of issue of the applicable Tranche, and (ii) US$7.00. 

      to being equal to: 

    • the lesser of (i) the 20 trading day VWAP of the Subordinate Voting Shares as of the trading day immediately preceding the date the applicable Tranche is called by the Company, (ii) the 20 trading day VWAP of the Subordinate Voting Shares as of the trading day immediately preceding the date of issue of the applicable Tranche, and (iii) US$2.55.
  • the Company will be able to force the conversion of up to 75% of the then outstanding Notes under the Facility if the VWAP of the Subordinate Voting Shares is at least US$6.20 for any 20 consecutive trading day period, at a conversion price per share equal to US$6.20, with both the forced conversion share price threshold and the conversion price per share being reduced from US$8.00.

What exactly does all this mean? The legal jargon makes things a bit confusing for many retail investors, so here’s a better summary that the average joe can understand.

  • Previously, access to Tranche 2 and 3 of the original Green Gotham arrangement required that minimum pricing had to be obtained in order for MedMen to have access to further funding. For Tranche 2, this price was US$3.75, and for Tranche 3, the price was US$4.50. This requirement has been removed, so that MedMen shall have access to the funding at current price levels. Time delays between accessing capital are still in effect.
  • The US$100 million that MedMen has previously accessed had a conversion price of US$3.29 per share. This has been reduced down to US$2.55. Essentially, if Green Gotham elects to have their loan converted into shares rather than have the cash returned, instead of 30,395,137 shares, they are now entitled to 39,215,686 shares before interest is factored in.
  • The two remaining tranches, numbered Tranche 2 and Tranche 3, currently have a conversion price with a maximum price point of US$7.00 per share. This has been changed to now have a maximum conversion price of US$2.55. There are certain instances where this price point can be lower, such as if the average price of MedMen for twenty days before the conversion of debt to shares is below the US$2.55, which will be weighted based on volume. Across both tranches, this in effect changes the minimum amount of shares for debt from 21,428,571 shares, to that of 58,823,529 shares. This was required as a result of removing minimum pricing conditions on accessing these funds.
  • Finally, in the event that MedMen is able to get it’s share price above US$6.20 for a period of 20 consecutive trading days, it can force the conversion of 75% of the outstanding debt. The conversion price on this debt would be US$6.20 instead of the previously agreed to minimum pricing in the event of this occurring. The price level for forced conversion was previously US$8.00.

MedMen has also identified that it intends to access the US$25 million associated with Tranche 2A in the coming days. MedMen will then not have access to further funding from the Gotham Green Partners agreement until November 22, 2019 as estimated. On this date, MedMen will be able to draw on a further US$50 million.

As a fee for having Gotham Green Partners commit to these changes, a 15% amendment fee is being added to the principal amount that has been loaned by Gotham Green. This amount, which is believed to be assessed on US$125 million as per the news release, is estimated to be $18.75 million. This fee will be cancelled should the debt be repaid in full in cash, or should the trading price of MedMen securities be over US$2.95 at the time Gotham Green elects to convert its debt to shares.

Lastly, Gotham Green and Wicklow Capital have agreed to a US$30 million non-brokered financing, at a price of US$2.37 per share.

In total, should all debt be converted into shares of MedMen Enterprises, Gotham Green will be in possession of an estimated 110,697,443 shares of MedMen. This is assuming that forced conversion does not occur, and does not include the amendment fee. This is believed to be roughly 20.56% of MedMen Enterprises on a fully diluted basis.

MedMen is currently trading at US$2.49 per share.

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.