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MedMen trying to pay vendors in stock
After bottoming to $8.13 from highs of more than $20, the Horizon Marijuana Life Sciences Index did see a small rally this week rising to $9.95 only to give away some of the gains in the days thereafter. The ETF currently sits at $9.39 at the time of writing.
There are very few cannabis companies that have seen sustained upward movement in share price. Canopy Growth, Organigram Holdings, and Tilray are the only stocks with any significant gains since the beginning of the year. Things are getting incrementally harder for cannabis companies as capital dries up and banks remain at arm’s length. MedMen Enterprises is having one of the most public capital problems as the company has laid off 190 workers and is looking to sell its retail license in Arizona. This week news broke the company was offering to pay vendors with stock.
“As part of the restructuring, the company has been actively working with its retail vendors on modifying payment terms, which in some cases include stock consideration,” the company’s CFO, Zeeshan Hyder, confirmed to MarketWatch by email.
This is no small company as MedMen has 33 stores across the U.S. in nine states with a location in Times Square, and $44 million in revenue in fiscal Q1 2020.
“The company has been increasingly focused on managing its working capital and has continued to communicate payment status to its key vendors,” Hyder said in his emailed statement.
About the company’s stock, trading on the CSE, it is currently worth CA$0.58, down 84% since this time last year.
Illegal cannabis still reigns supreme
Statistics Canada gave a quarterly update outlining key figures on cannabis sales in the country, and numbers showed legal cannabis is twice as much as illicit market cannabis. A gram of legal cannabis on average costs $7.83, while illegal cannabis costs $4.36 per gram. This gap is the widest the two have been since the recreational market came online in 2018.
Canada is not the only one being put on notice by the illicit market. California has seen its business climate become complicated thanks to high taxes, lack of local buy-in, high barriers for entry and expensive compliance costs. The state booked $3 billion in legal sales in 2019, but, actually, 80% of cannabis transactions in the state were underground, according to BDS Analytics and Arcview Market Research. Legal cannabis businesses are shrinking by tens of thousands and many have predicted a supply chain shutdown in the state, if the cash crunch does not stop.
“The perfect storm has occurred here in California, with taxes and regulations,” said Andrew DeAngelo, co-founder of Oakland retailer Harborside. “We learned that we got this very, very wrong.”
Illinois cannabis shops are closing due to lack of supply
As expected, Illinois demand spiked, and many retailers have closed their doors temporarily with low inventory. Shops in the Land of Lincoln enjoyed impressive first day numbers, selling more than $11 million in early sales, but many retailers just simply don’t have product to sell. This means some shops are paying utilities and other overhead costs with no customers.
“The demand in Illinois is every bit as large as anyone could have suspected,” Zachary Zises, owner of Dispensary 33 in north Chicago, told MJBizDaily.com. In the same article, Zises also hinted that wholesalers are running out of product. “We are doing our best to buy as much product as we can on the wholesale market, but we’re having tremendous difficulty doing that,” he added.
While closed cannabis shops certainly appears bad, this was expected for Illinois as many cultivation facilities were simply not ready to expand. In addition, the ripple effects of the cash crunch are also evident here. Many companies have closed cultivation facilities across the country in order to save a few dollars, which is now making the wholesale market spotty.
Equities Contributor: Stephen L. Kanaval
Source: Equities News