Marijuana retailer and operator MedMen Enterprises announced $11.7 million financial commitments from existing lenders and investors.
The company raised the amount to strengthen its commitment to profitability and sustainability, leveraging on retail business. Operating across Los Angeles, Arizona, Florida, Illinois, New York, and Massachusetts, the cannabis retailer plans to maximize its operations by creating a new convertible facility.
More than building a new facility, the deal also includes a $5.7 million additional proceeds to Stable Road Capital term loan and a $5 million senior secure facilities by Gotham Green Partners.
The Los Angeles-based cannabis retailer has been pushing for licenses in several other US states, including Virginia, after losing its medical marijuana license. Part of the financing commitment is to recognize other potential markets in the country and to neutralize its debt with a 7.5 percent interest.
Investors have the ability to convert the debt to MedMen’s shares of stock. Last September, an initial $1 million tranche is closed, subject to certain conditions. While this arrangement is already a huge commitment, the new deal has a whopping interest rate of 18 percent annually, to be paid in cash monthly by 12 percent, and remaining for accruing monthly.
“We are pleased with the continued support from our existing capital partners as we continue our recent track record of execution. The financing package is a significant milestone for the company and is a reflection of the commitment [MedMen] has made to strengthen the balance sheet,” said Executive Chairman Ben Rose.
The deal is a result of a new business direction set by the company, as it previously gone through leadership changes. Before 2019 ends, the cannabis retailer decided to cut off its workforce to strengthen its financial position in the marijuana market. Changes brought profitability, and risk loaning money to increase its operations in different states.
Focus on Retail Business
As mentioned, MedMed is trying to accelerate its path to profitability by creating more convertible facilities in the country. As more people recognize the brand, the demand is gradually increasing, hence the need to double and triple the supply. The deal is only a fraction of what the company is trying to go for, and to leverage on more supplies to cater to a massive number of people.
The focus on retail business is effective and is the number source of revenue. Medmen is already revolutionizing the retail market by offering different products like edibles, flowers, vapes, prerolls, and strains. Even before the pandemic, the company also turns to delivery services to ease the trip of customers visiting the dispensaries.
More than the delivery services, MedMen also tries to be a little more creative by introducing new cannabis-based services like massage or Cannasseur. Operating more than 29 stores and six cultivation facilities, the cannabusiness is pushing for greater heights with the help of the new financial package.
Last February, the company also expressed plans to simplify its offering and business venture. Instead of growing and producing cannabis, it initially planned a full stop on cultivation, purely focusing on selling products alone.
Citing consumer’s vertical and chain value, MedMen monitored the performance of each retail store, and see if the sales are improving. CEO Ryan Lissack is eager to invest in assets that help the company move forward to achieve financial goals. This came after its widened net loss to $18.7 million from 2019’s data.
A few months following the plans to let go of the cultivation business, the company leveraged on producing marijuana and even funded a new facility. It all boils to the decision of the management and the investors to pursue the business venture and explore potential markets.
Positive Licensing Developments
The licensing grants help the company to strive in several markets, including in California and Massachusetts. With positive developments, the cannabis retailer is able to establish and retain its stores, more so, increasing sales due to the adult-use approval.
In Massachusetts, MedMen was granted an adult-use license for a retail location in Fenway Park. This strengthens the company’s retail footprint in the state, while neighboring locations are still subject to approval. As the brand expands further, they aim to hit more retail stores scattered across the country, without limiting the products sold per dispensary.
As chairman Ben Rose draws new plans to navigate more markets, the company is eager to improve its existing four-wall economics. By optimizing the business models, improving their presence, and creating profitable partnerships, the company can move forward.
Senior Secured Term Loan
The amendment to the commercial loan agreement managed by Stable Road Capitals can help increase the potential size of the facility by $12 million. This is fully committed by the Term Loan Lenders, and the remaining $2.7 million will be funded by the end of September 2020.
The principal amount carries a hefty interest rate of 18 percent, which is modified to a minimum liquidity covenant. This extends to December 31, 2020, and effective on March 31, 2021, and another $15 million by the end of December 31, 2021.
MedMen’s warrants include an initial $3 million for the Term Loan Lenders, totaling to $30 million warrants in total. An exercisable $0.20 per share in the period of five years is included in the deal, with over $20,227,865 warrants at $.034 per share.
Advancing to $5 million proceeds for the Senior Secured Convertible Facility leads MedMen to issue subsidiary CAN USA Inc. additional notes as part of the agreement. This leaves a conversion price per share equal to $0.20. Participating lenders can receive a $468,564 fee with a conversion price of $0.20 per share, in line with the terms of the Facility.
The company will disclose its fourth-quarter financial results for this year, after the market close on Sept. 28, 2020. The enterprise will host a conference call and audio with the upper management, including chief executive officer Tom Lynch, financial officer Zeeshan Hyder, and interim chief operating officer Tim Bossidy, discussing the financial results in detail.