MedMen stock is continuing to sink on Monday after MedMen Enterprises (CSE:MMEN) (OTCQX:MMNFF) announced last week that it was pulling out of Arizona's medicinal cannabis market in a continued effort to streamline the firm's operations.
MedMen Stock Trades Near Lows on Worrying Financial Position
MedMen's financial position has come under scrutiny in recent weeks after reporting its Q1 fiscal 2020 results in late November, which saw gross profit come in at $21.8 million USD while expenses totaled $66.1 million USD. MedMen stock has been hovering around new lows ever since, as the company's aggressive expansion strategy appears to be backfiring. Throughout 2018 and 2019, the company was busy buying up licenses throughout the US and expanding its retail footprint in several key states, particularly Florida and California.
As a result of the excess weight on its portfolio, MedMen Enterprises has been forced into several cost-saving measures, including two major rounds of layoffs, which saw over 200 staff out of a job. MedMen has now decided to withdraw from the Arizona market despite being one of the major donors to the state's 2020 campaign for adult-use pot legalization, contributing $200,000 to the Smart and Safe Arizona initiative in 2019. The LA-based firm has now decided to sell all three of its medicinal licenses in Arizona, leading to a 5% decline in MedMen stock.
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Additional Equity Financing
Alongside the sale of the Arizona licenses, MedMen has also announced that it will divest its cultivation and manufacturing license in Illinois. The company expects the sale of these non-core assets to generate $54 million USD in gross proceeds, which, coupled with a planned equity placement that will see nearly 47 million Class B shares issued at a price of $0.43, should generate a total of approximately $74 million USD. MedMen stock is currently trading for $0.66, despite trading as high as $4.79 less than 12 months ago.
Canceled PharmaCann Deal
Signs of the company's pullback on its aggressive expansion strategy first became evident in October when MedMen Enterprises terminated its proposed $682 million USD acquisition of multi-state private cannabis firm PharmaCann. The terms of the termination saw MedMen forgive $21 million USD in debt in exchange for the transfer of several assets, most of which were located in Illinois and likely include the license for sale as part of the latest round of equity financing. MedMen stock has dropped over 70% since pulling out of the PharmaCann deal.
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