Investor Watch: MedMen fumbles are putting investors on fence

When California-based cannabis company MedMen released its most recent financial results Feb. 28, CEO Adam Bierman acknowledged the group had not done enough to “own our own narrative.”

Unfortunately, the wish to boost such a narrative went sour quickly.

With a combination of a number of public relations missteps and expansion decisions that many are questioning, the headline-friendly company has seen its share price falter and remain in the doldrums. The jury is still out, however, on any future opportunities for the company.

“I think the stock performance makes it clear that investors are taking a wait-and-see approach as to whether the company will be able to work through its challenges,” Jesse Pytlak, a research analyst at Toronto-based Cormark Securities, told Investor Intelligence.

The challenges seem to include both MenMen’s public image as well as some of its execution plans as the company contends with others to gain market share in the increasingly competitive space that is the fast-consolidating cannabis industry.

PR stumbles

A few days after its February results were released, MedMen got into hot water with U.S. authorities after a public relations firm the company had hired, Winning Media, published a story on urging readers to buy MedMen stock.

The story, which MedMen distanced itself from by saying it hadn’t been approved according to internal company procedure, may have fallen outside the scope of what Winning Media was hired to do, namely, promote the company through online ads, authorities noted.

Better news followed when private equity group Gotham Green Partners said March 22 it will pump $250 million into MedMen in the largest single investment in a publicly traded marijuana company with U.S. operations.

But MedMen’s pattern of one step forward and one step backward continued April 19 when major executives and board members said they were leaving the company.

MedMen said chief operating officer Ben Cook and general counsel and board member Lisa Sergi resigned.

According to CNBC, Daniel Yi, senior vice president of communications also left, but MedMen did not confirm his departure in its official media release. Yi could not be reached for comment.

Execution problems

On April 15, the company released unaudited sales figures that some observers have noted were not exactly stellar.

While strong growth was reported in Nevada and Arizona, where MedMen recently expanded, the 5% reported quarterly revenue growth in Southern California retail locations was described as “anemic” by Motley Fool commentator Sean Williams.

In addition, sales from recent acquisitions fell, suggesting MedMen may be overpaying for such targets, Williams said.

The investor community will be anxious to hear quarterly results May 29 just to see where MedMen is on its trajectory.

For now, Pytlak at Cormark is maintaining a target share price of 7.50 Canadian dollars, upgrading the stock from Market Perform to Speculative Buy on March 25, just days after the Gotham Green investment.

“We think that the financing with Gotham Green is a meaningful first step to rebuilding investor confidence in the company’s longer-term outlook,” Pytlak wrote in a research report in which he also cautioned that concerns remain over the company’s cost structure.

As for recent share-price performance? On March 1, after results were released, MedMen (MMEN) closed on the Canadian Securities Exchange at CA$3.92 and received a boost after the Gotham Green investment to close at CA$4.49 March 25.

More recently, the stock has been on a largely downward trajectory, dipping to a close of CA$3.80 on April 22 after the senior executives resigned. As of April 29, the stock was at CA$3.71, down from March 1.