MedMen stock has been doing well since the beginning of June as the broader cannabis sector has been showing a sign of value buying after the recent correction.
Let’s analyze the recent developments from MedMen Enterprises (CSE:MMEN) (OTCQX:MMNFF).
MedMen Enterprises has grown its revenues impressively over the past few quarters on the back of its upscale cannabis products sold through its own dispensaries. However, some industry watchers had predicted that the third quarter results for the company would prove to be a disappointment, and their predictions turned out to be correct. Now, it needs to be pointed out that like most other vertically integrated dispensary operators, MedMen has also steadily managed to grow its revenues, but its sales breakdown by state isn’t incredibly encouraging.
The company had always depended on its sales in California, one of the most lucrative markets for cannabis in the world, and around 66% of the company’s revenues were generated from the state in the last quarter. However, it is the rate of sales growth that could prove to be a problem in the future, as sales in California grew by only 5% from the previous quarters. While it is true that supply chain problems have been a factor, it is also important to note that such meager growth in a state that generates more marijuana revenue than Canada is not a particularly encouraging sign.
MedMen stock has recovered almost 35% since June 5 as the stock has jumped from $2.60 to $3.55 on the CSE.
Lacking Earnings Growth
The Q3 2019 figures proved to be disappointing on many levels. The net operating losses for the quarter stood at $53 million, while the same for the first nine months of fiscal 2019 hit a staggering $178.4 million. Additionally, the company’s expenses have spiraled out of control as well, and the year-on-year expenses went up three times to $73 million for the third quarter.
The eventual net losses came in at $63.1 million, which pegged the losses per share at $0.20. The company is clearly going through a bit of trouble despite having a business that is definitely viable. Its inability to control its losses despite operating in California is also concerning and particularly so since direct rivals like Harvest Health & Recreation Inc (CSE:HARV) (OTCQX:HRVSF) and Trulieve Cannabis (CSE:TRUL) (OTCPK:TCNNF) are managing to turn a profit.
MedMen stock is now trading higher by 4% at $3.55 CAD. On the OTC market, MMNFF stock is trading at $2.75, up by 1%.
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