MedMen Enterprises (CSE: MMEN) announced Tuesday the end of its agreement to acquire PharmaCann, terminating CFO Michael Kramer in the process and pushing out the firm’s EBITDA break-even to end of calendar 2020.
The company cited rapid changes in the cannabis industry and the capital markets as key factors of the deal termination.
With the capital expenditures required to fully develop the PharmaCann assets and MedMen stock falling from $5.80 last October to $1.95 on Tuesday, a capital raise to fund new market expansion would have been far more dilutive than originally envisioned.
This is yet another example that highlights the risk to companies burning cash while relying on raising additional capital to execute their strategies.
We see several negatives in MedMen’s news release, as well as a few positives.
Negatives:
- Termination of the CFO after just 10 months is troubling, especially given the high turnover rate of the company’s senior management over the past 18 months.
- EBITDA break-even target by the end of calendar 2020 versus the consensus estimate of positive $3 million for the June 2020 quarter and $52.5 million for full-calendar 2020.
Below are previous consensus estimates for EBITDA by quarter through the end of calendar 2020.
| 2Q19 | 3Q19 | 4Q19 | 1Q20 | 2Q20 | 3Q20 | 4Q20 | |
| EBITDA | (35.5) | (20.5) | (14.6) | (4.4) | 3.1 | 22.7 | 31.0 |
Positives:
- Management walking away from a deal that would have been very dilutive to existing shareholders.
- The company focusing on going deeper (in existing markets) versus going broader (entering new markets).
Craig Behnke can be reached at craigb@mjbizdaily.com
Mike Regan can be reached at miker@mjbizdaily.com
