MedMen stock is in the green and climbing, selling for $4.13 CAD and up 0.5% at the time of writing. It's looking good, but last week was volatile for MedMen Enterprises (CSE:MMEN) (OTCQB:MMNFF); last week was a vision of stark highs and sudden drops ranging anywhere between $4.28 and $4.05.
MedMen Stock
It's a reminder to investors that no stock (no matter how popular) is going to be plain sailing. The cannabis industry, though lucrative, comes with a myriad of possibilities. One such issue MedMen stock investors could face is a phenomenon that happened to Tilray (NASDAQ:TLRY) stock last week.
That is, a sudden price drop when what's known as a lockup provision expires.
Lockup Provision
As stated, it happened to Tilray last week: TLRY stock suddenly plunged 17% as early investors in the business were finally able to sell their shares in the public market. In short, Tilray's lockup provision expired.
A lockup provision contractually prevents certain early investors from selling their shares for a set period of time. This time is usually around six months. As the Motley Fool explains: "Its purpose is to prevent company insiders and other early investors from selling off their entire positions in a stock immediately following a company's initial public offering."
Once the period is over, there could be a mass exodus of investors in the stock.
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MedMen Stock Lockup
MedMen Enterprises's acquisition of PharmaCann included stipulations that some of the shares issued as payment would be subject to lockup provisions. The deal has yet to officially close, however, and this means we could be waiting another 6–12 months for the necessary approvals.
It's something investors should keep in mind where MedMen stock is concerned. We are still approximately two months away from a potential 6-month lockup expiration date, so keep an eye out from April onwards.
Not Always the Case
What happened to TLRY stock isn't always the case though. For investors who own MedMen stock, the company's future prospects will help its fate. Most likely, if early investors see the stock heading higher around the expiration date, then they will hold, and the price shouldn't be impacted.
However, often early investors want to cash out at least some of their profits. If this is the case, then big drops could follow once the lockup period expires and this will be a disaster for the MedMen stock price.
What do you think will happen to MedMen Enterprises when the lockup times out?
Featured Image: Canva
