In the last month, MedMen stock has lost roughly 21%. Yes, the wider market has also suffered, but it's notable that that decline exacerbated in the last five days as we approached MedMen Enterprises' (CSE:MMEN) (OTCQX:MMNFF) Pro-forma Q4 release.
The company released its results last night, and now shares are down a further 1.10% selling for a meager $1.80 USD in early morning trade.
MedMen Stock: Will the Results Wreak Havoc?
Last night, the company announced unaudited systemwide revenue figures for fiscal Q4 2019. Is also updated investors on "several corporate initiatives, including efforts to optimize SG&A and raise capital, the status of the pending PharmaCann transaction and retail store expansion."
With the revenue figures unaudited, investors must take them with a pinch of salt; however, the company reported as per the release a systemwide revenue, including pending acquisitions, of $61 million USD. This represents an "annualized run rate of approximately $245 million USD."
High Taxes Wreaking Havoc on MedMen Stock?
That figure is not all-too impressive. And an issue may be presenting itself in the heart of California where MedMen Enterprises boasts 13 stores. According to the Motley Fool, "sequential sales growth in Q3 for its established California stores was a meager 5%."
Now, in the most recent quarter, sequential sales growth rose to 22%. That's more like it! However, MedMen's net loss still came in at $63.1 million. And this simply adds to the pile: "Over the trailing nine-month period, MedMen has racked up a not-so-impressive operating loss of $178.4 million."
Is the problem that MedMen pumped all it has into the high-sale market of California? And never anticipated the massive kickback due to the higher price of legal cannabis because of the state's high aggregate tax rates?
MedMen Stock Hit By Reports
A recent report from Arcview Market Research and BDS Analytics found that legal cannabis sales in California declined last year from the prior-year period, even though recreational marijuana sales began in 2018. The expectation would've been that as the legal operators expanded, sales would increase.
But the state has proven otherwise, hitting legal operators with aggregate tax rates as high as 45% in some instances. The tax has then driven retail prices high. How could that possibly compete with a black market that has already been long established?
MedMen Enterprises has managed to make itself well-known, but MedMen stock still remains a risky play. Ironically, one big reason for this is how much reliance it has on the California market.
Featured Image: Canva