MedMen Still On Track To Be Premier Cannabis Retailer Despite Litigation Hurdles, Analyst's Take On Q1 Earnings

Cannabis retailer MedMen Enterprises Inc. MMEN MMNFF reported Tuesday that its net revenue increased 13.4% year-over-year to $39.8 million for the first quarter of 2022.

However, on a sequential basis, sales dropped 5%.

Tom Lynch, MedMen's chairman and CEO, said that "despite sequential softening in the overall macro environment," the company was "able to deliver solid increases in year-over-year revenue."

Moreover, the company kicked off the fiscal year with its fifth consecutive quarter of positive retail adjusted EBITDA from continuing operations, which was 17.3% compared to 15.1% in the same period of 2020.

In his latest note, Cantor Fitzgerald's analyst Pablo Zuanic said that MedMen's management "continues to make progress turning around the business," highlighting that it is in a "stronger position" following the $100 million investment from Serruya Private Equity.

The Analyst

Zuanic increased a price target on MedMen's stock to $0.26 from $0.25 while maintaining a Neutral rating.

The Thesis

In August, investors, led by Serruya Private Equity, agreed to purchase $100 million of the Los Angeles-based company's units at a purchase price of 24 cents per unit. Simultaneously, Canadian cannabis giant Tilray inc. TLRY acquired the majority of MedMen's outstanding senior secured convertible notes that were initially held by certain funds affiliated with Gotham Green Partners LLC (GGP) and others.

In the meantime, the company reported having total assets of $531.9 million, including cash and cash equivalents of $78.2 million as of Sept. 25.

Lynch explained that the company is now focusing on executing its "growth plan in the coming quarters, including plans to continue increasing our store footprint during fiscal 2022."

"MedMen plans to expand the footprint by almost 40% in the year ahead from 23 in the Sep qtr to 31 (CA +2, IL +1, MA +2, and FL +3), and has expanded capacity in FL," Zuanic said, adding that "buds, a proprietary loyalty program, and a revamped CRM, should all help drive same-store sales growth."

The analyst projected negative EBITDA for the 2022 calendar year, noting that "greater EBITDA margin expansion visibility could help the investment case."

The company is guiding for sequential EBITDA improvement for the December quarter and expects positive EBITDA and cash flow, even though it hasn't provided a timeline.

Nevertheless, Zuanic said he thinks "litigation costs remain a burden for now."

The company reported a 42.6% year-over-year increase in corporate SG&A expenses, which was driven by a $3.9 million increase in professional fees as a result of litigation costs associated with previous officers of the company.

Nevertheless, the management is "focused on improving the business model and making it scalable," the analyst said, as its strives toward being "the premier retail experience destination in the cannabis sector."

Zuanic also opined that management "still has a way to deliver on that vision."

MMEN Price Action

MedMen's shares traded 1.61% lower at $0.305 per share at the time of writing Thursday morning.

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