US cannabis retailer MedMen Enterprises (MedMen Enterprises Stock Quote, Chart, News CSE:MMEN) should be a no-go zone for investors, at least until it shows signs of righting the ship. That’s the advice from James Telfser of Aventine Asset Management who peeled back the cover on MedMen and didn’t like what he saw.
Insiders have been saying it for months now: the year 2020 will bring about the ugly death of many a pot company, as the industry matures and companies have to prove their mettle both in terms of quarterly numbers but also through the day-to-day running of their business.
And while that message has seemingly been intended for the more small fry names in the sector, it’s one of the biggest fish in the US pot pond which is getting the headlines these days. MedMen, a veritable old fogey in the cannabis space with roots going back to 2010 and now businesses and brands stretching across the United States, has made announcements over the past few months that show signs of strain.
In November, management announced a new 90-day strategic plan involving tightening the company’s focus onto core markets while slimming down by laying off 190 employees. That was followed up in December by another round of layoffs at the corporate level and then, earlier this month, the company began selling off assets including all of its operations in Arizona, as rumours grew that MedMen was having difficulty paying vendors in its cash-strapped state.
The image is one of a company in trouble, with little chance of help arriving from the capital markets which have all but dried up over a shaky 2019 in cannabis both in Canada and the US.
Speaking to BNN Bloomberg on Wednesday, Telfser, managing partner and portfolio manager for Aventine, said that while his firm is not invested in cannabis, upon inspection of MedMen’s business there was much left to be desired.
“Fire & Flower is a name that we followed for a while, with a solid management team, and they’re doing great things. They’re a retailer and MedMen is a retailer, which we looked into,” Telfser said. “What we saw sort of knocked you off your chair a little bit when you talk about companies that are aligned properly with shareholders or companies which have just these massive expense lines.”
“It’s very opaque and they have debt. It’s one of those names which I would not rush out to double down on or average down on,” he said. “There are way better names than MedMen which have much more of a margin for safety if you wanted to play a bounce in the cannabis space. I’d be very cautious there.”
MedMen’s share price has felt the hit over the past six months, having fallen harder than most in the beleaguered cannabis space. Since last July, the stock has lost 78 per cent of its value.
“Looking at it technically, fine, but some stocks you have to look at fundamentally, especially in the cannabis space, where I don’t even know if there are any that would stand up to the kind of scrutiny that we put a company through,” Telfser said. “So just be careful with MedMen.”