The shops of MedMen Enterprises set a slick, upscale tone for American cannabis dispensaries, at the hands of founder Adam Bierman. But the chief executive’s lavish spending antagonized colleagues and torched bonfires of cash, dropping MedMen stock nearly 90% in the past year.
Friday morning, MedMen (MMEN.Canada) announced Bierman’s resignation, effective Saturday. In April, he’ll also turn over the supervoting shares that kept control of the company in the clutches of him and co-founder Andrew Modlin. That probably means that MedMen will now be steered by its main creditor, Wicklow Capital, the Chicago-based family office of Dan Tierney, who made his fortune at the high-speed trading firms Getco and KCG Holdings. MedMen’s Modlin will grant a proxy for his own control shares to Wicklow executive Ben Rose, who’s already the board chairman of MedMen.
The end of Bierman’s cash-burning reign cheered investors. They lifted MedMen’s Canada-listed stock 11% this morning, to C$0.60 (45 cents U.S.)
“I continue to believe that MedMen is positioned to thrive,” said Bierman in the company’s announcement. “It’s time for our next iteration of leadership to capitalize on the opportunity we have created.”
A former marketing executive, Bierman sought to welcome new users to his legal cannabis shops with tony addresses and an Apple (AAPL) Store style. Its locations ranged from California to New York and revenue reached an annual run-rate of about US$175 million by the September 2019 quarter. But Bierman and Modlin spent heavily for those sales, and for their own compensation and perks like company cars and jets.
Despite raising hundreds of millions from investors, MedMen had trouble reining in its spending and found itself forced to borrow from Wicklow on onerous terms. A planned merger with another multistate operator was canceled as MedMen’s stock price collapsed.
Stifel GMP analyst Rob Fagan estimates that even after belt-tightening, MedMen’s overhead was running at an annual level of $155 million. So with a 50% gross margin on $175 million in revenue, it was still far from profitable.
Fagan believes the company’s operations in California, Nevada, Illinois, Florida and New York hold significant value, especially if New York governor Andrew Cuomo succeeds in his plan to legalize recreational weed sales. MedMen said in its Friday announcement that the company’s chief operating officer Ryan Lissack will serve as interim CEO while the board decides on Bierman’s replacement.
As for the stock, Stifel’s Fagan says the news removes a valuation overhang, but cautions that MedMen must do significant work to reach profitability.
Write to Bill Alpert at email@example.com