Our MedMen Stock Prediction In 2019 (Buy or Sell?)
In growing numbers of cities and towns across North America, you can just walk through the door of a marijuana dispensary and casually buy pot, the way you can walk into the corner grocery store to buy granola and fruit.
Exemplifying the mainstreaming of Mary Jane is cannabis dispensary operator MedMen Enterprises (CSE: MMEN, OTC: MMNFF).
MedMen’s goal? To become nothing less than the “Whole Foods of Pot Shops.”
MedMen went public on the Canadian Stock Exchange (CSE) under the stock ticker symbol MMEN on May 29, 2018. The stock is a hot topic among financial pundits, because the company is in the vanguard of the marijuana dispensary sector’s consolidation. Companies such as MedMen seek economies and scale and vertical integration, a clear sign that the pot business is maturing.
In April 2019, the company provided preliminary quarterly operating results that have stoked investor enthusiasm (more on those results, below).
Is MedMen a worthy investment or just another marijuana pipe dream? Let’s find out.
What Is MedMen?
Based in Culver City, California, MedMen cultivates, produces, distributes, and retails recreational and medicinal cannabis. Founded in 2010 and currently sporting a market cap of $1.3 billion, the company has greatly expanded beyond its initial markets of California, Nevada, and New York.
Upon the close of various pending transactions and acquisitions, MedMen will have 32 operational dispensaries, and licenses for 19 factories across 12 states.
How Has MedMen Stock Performed?
- Year to date, MMEN has fallen 1.82% whereas the S&P 500 has gained 15.96%.
- Since going public on May 29, 2018, MMEN has fallen 23.64% compared to a gain of 8.07% for the S&P 500 (see chart).
Who Are MedMen Rivals?
The marijuana retail dispensary market is getting more competitive, as cannabis becomes a legal and routinely available product. Marijuana has gone from counter-culture to consumer culture.
MedMen’s three chief rivals are the following public companies:
Curaleaf Holdings (CSE: CURA, OTC: CURLF)
Curaleaf Holdings, based in Wakefield, Mass., operates an integrated network of medical and wellness cannabis facilities throughout the U.S.
Curaleaf cultivates, processes, markets, and dispenses marijuana products in a range of forms, including flower, pre-rolls and flower pods, dry-herb vaporizer cartridges, concentrates for vaporizing, concentrates for dabbing, tinctures, lozenges, capsules, and edibles.
With a market cap of $5.5 billion, Curaleaf currently operates a network of 34 dispensaries, 12 cultivation sites, and 10 processing sites in 12 states.
Green Thumb Industries (CSE: GTII, OTC: GTBIF)
With a market cap of $2.8 billion, Green Thumb Industries manufactures and sells a broad variety of marijuana products in the U.S. The company’s cannabis products include flower, concentrates for dabbing and vaporizing, edibles, and topicals.
Based in Chicago, the company markets its products through third party retailers. The company currently owns and operates a chain of 73 retail stores under the RISE name.
Founded in 2014, Green Thumb went public in Canada in June 2018.
Trulieve Cannabis (OTC: TCNNF)
Based in Quincy, Florida, Trulieve cultivates, distributes, and retails medical cannabis in the U.S.
With a market cap of $1.4 billion, the firm offers a suite of Trulieve branded products, including nasal sprays, capsules, concentrates, syringes, and cannabis flower in containers for vaporizers, topical creams, tinctures, and vape cartridges. The company distributes its products to 21 Trulieve branded dispensaries in Florida.
Will MedMen Go Up In 2019 (Should You Buy)?
MedMen enjoys powerful, multi-year tailwinds.
Cannabis dispensaries are local government regulated physical locations in which a person can legally buy marijuana and marijuana-related products for medical or recreational use.
About 62% of Americans think marijuana should be legalized. In the United States, marijuana remains outlawed at the federal level, but increasing numbers of states are legalizing pot for medicinal as well as recreational use.
In October 2018, Canada legalized on the federal level the possession and use of recreational marijuana. Medical marijuana has been legal in the Great White North since 2001.
The normalization of marijuana continues apace. In March 2019, the U.S. House Financial Services Committee voted to pass legislation that would make it easier for marijuana businesses to access banking services. The bill will be considered by the entire House, which is now run by marijuana-friendly Democrats.
The proposed bill seeks to expedite the provision of financial services to cannabis companies by removing the fear of potential federal action against lenders. Many banks are reluctant to lend to marijuana businesses because of uncertainty over the industry’s legal status.
On April 15, MedMen posted preliminary results for its fiscal 2019 third quarter that are encouraging. Across the company’s operations in California, Nevada, New York, Arizona and Illinois, revenue reached $36.6 million, representing a 22% quarter-over-quarter increase over its fiscal 2019 second quarter. Systemwide retail revenue for the quarter, including revenue from pending announced acquisitions, is based on 32 retail stores that were operational at the end of the quarter.
MedMen has 16 new locations scheduled to open in 2019, including 12 locations in Florida, where the company is licensed for up to 35 locations. The company is expected to post its complete fiscal 2019 third quarter results in May 2019.
This video explains the company’s ambitious aspirations:
In December 2015, MedMen West Hollywood opened as the first cannabis retail store in California. Since then, the company has undertaken several expansionary moves:
April 2018: The company opened MedMen Mustang, a 45,000 square foot greenhouse and manufacturing facility near Reno, Nevada. Management expects MedMen Mustang to produce 10,000 pounds of high-quality marijuana every year.
May 2018: MedMen broke ground on a second 45,000-square-foot cannabis factory in Desert Hot Springs, California.
May 2018: MedMen joined forces with Cronos Group (NSDQ: CRON) to launch retail cannabis stores throughout Canada. Toronto-based Cronos Group is an investment company that buys stakes in companies that are either licensed, or seeking a license, to produce medical marijuana.
June 2018: MedMen acquired a nursery and retail license to build 35 stores in Florida, a state where marijuana use is growing especially fast.
October 2018: MedMen acquired private company PharmaCann, one of the largest vertically integrated cannabis companies in the U.S., in a deal worth $682 million.
April 2019: MedMen acquired licensed cannabis retailer Sugarleaf Trading, located in the Northern California city of Seaside, making it MedMen’s third retail store in the high-demand market of Northern California.
All of these strategic moves set the table for MedMen’s future growth, regardless of the ups and downs of the broader stock market.
Will MedMen Go Down In 2019 (Should You Sell)?
The bear case against MedMen shouldn’t be ignored.
The marijuana dispensary business is risky. Many entrepreneurs have put all of their eggs into the wrong basket while trying to open a marijuana dispensary, because they didn’t do their homework.
Dispensary owners that open their retail outlets without gathering sufficient intelligence on state and local regulations risk a government crackdown that can wipe out their investment.
And remember, marijuana remains outlawed in the U.S. on the federal level. Increasing numbers of states are legalizing pot, but Uncle Sam still bans it. The feds have left it to the states to come up with their own laws regarding pot, which has created a crazy quilt of regulations.
What’s more, the Trump administration remains avowedly anti-pot. A change in the regulatory climate could clobber companies such as MedMen.
MedMen also could get crushed if a larger company in league with Big Pharma decides to poach MMEN’s retail markets.
Overall MedMen Forecast And Prediction For 2019
After weighing the pros and cons of MedMen, the verdict goes to the bulls.
For starters, the normalization of marijuana laws represents an unstoppable trend. States and localities are becoming addicted to the tax revenue from pot and Congress knows this fact of life. Most lawmakers don’t want to end the tax revenue gravy train.
And MedMen’s own revenue is growing like gangbusters. Fiscal year 2018 systemwide revenue was $39.8 million, compared to $2.7 million in fiscal year 2017.
Admittedly, for its fiscal year 2018, MedMen reported a net loss of $66.6 million, or $2.77 per basic and diluted share. Operating results for the first and second quarters of fiscal 2019 have shown huge revenue growth, also with net losses. However, as it reaps synergies from vertical integration, the company should soon start posting profits.
Robust cash flow from booming revenue is preventing MedMen from getting stretched too thin. When investing in small- or mid-cap “disruptors,” red ink can be tolerated by investors over the short term, as long as revenue is rapidly growing and management is using the revenue to invest in future organic growth. That appears to be the case with MedMen, which is poised for outsized gains in 2019 and beyond.
MedMen just might realize its dream of becoming the Whole Foods of pot-buying. It’s a compelling growth story.
John Persinos is the managing editor of Investing Daily.