MedMen Stock: Investors Should Brace for Volatility Ahead of Earnings

MedMen stock

This morning, MedMen stock is under pressure and down over 2%, selling at $2.73 USD on the OTCQX. MedMen Enterprises Inc (CSE:MMEN) (OTCQX:MMNFF) is expected to release its revenue report in May. Will this trigger any movement behind MedMen stock?

Sorrento Valley Store Opening

On April 25, MedMen Enterprises announced the opening of its 11th store in Sorrento Valley, San Diego, California. San Diego is considered one of the most visited tourist destinations in the world, and with over 1.4 million people, the city presents a big opportunity for the company to grow its potential.

The opening of the store is part of the company’s expansion plans as MedMen looks to capitalize on the $11 billion marijuana market. Currently, MedMen has a market share of 7% and estimated annual sales of $100 million. The store in Sorrento Valley is close to some big company headquarters, as well as the University of California. Sounds like good news for MedMen stock, right?

Q3 2018 Preliminary Results

In the third quarter, the company reported a systemwide revenue of $36.6 million, which included retail operations. This is a 22% increase in revenue compared to Q2, and it includes the acquisition of PharmaCann. Pro forma sales grew in the quarter by 11% to $54.9 million. PharmaCann had strong sales growth, up to $15.5 million from $9.8 million.

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Although MedMen has shown strong growth, there are red flags regarding how the company generated its revenue. Nevada and Arizona contributed 34% and 513% in sales growth respectively, but organic sales growth in 10 of MedMen’s Southern California locations declined, contributing only $24.9 million. Similarly, gross margins decline by two points down from 53% in Q2 to 51% in Q3.

Despite making a gross profit of $19.5 million, after factoring in sales and marketing costs, administrative costs, as well as amortization and depreciation, that number will be much depleted. Operating expenses cost the company $73 million in the first quarter and increased to $78 million in Q2.

Outside of PharmaCann, revenue from acquisitions declined 7% to $18.3 million.

So, all this under consideration, the upcoming revenue report may not be what investors are hoping for, and MedMen stock may be the one to pay the price.

What do you think?

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