Debra Borchardt
MedMen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) didn’t completely sell its New York operations to privately held Ascend Wellness, but it’s pretty close. Last week, beleaguered California-based cannabis operator MedMen signed an agreement with Ascend Wellness Holdings, where Ascend would make an investment of approximately $73 million in MedMen NY Inc. or MMNY. MedMen’s shares jumped over 14% in trading on Friday to lately sell at 48 cents.
Following the investment, Ascend will hold a controlling interest in MMNY of approximately 86.7% and will have an option to buy MedMen’s remaining interest in MMNY in the future. Also in the agreement, Ascend must also make an additional investment of $10 million in exchange for additional equity in MMNY. This investment will also be used to repay MMNY’s senior secured lender if adult-use cannabis sales commence in MMNY’s dispensaries.
“We believe the proposed transaction will bring fresh capital and a new perspective to New York’s medical marijuana program and its patients,” said Abner Kurtin, Founder of Ascend Wellness. Ascend Wellness is a vertically integrated operator with assets and partners in Illinois, Michigan, Ohio, Massachusetts and New Jersey. Ascend produces and distributes Ozone branded products.
Of course, all of this is subject to approval from the New York State Department of Health and other applicable regulatory bodies. The state did not approve of MedMen’s attempt to acquire PharmaCann’s operations in New York back in the day, so nothing is ever certain. That deal was scrapped back in 2019. MMNY will also use Ascend’s services for a management agreement under which Ascend will advise on MMNY’s operations pending regulatory approval of the Investment transaction.
Agreement Terms
The details of the deal say that MMNY will assume up to approximately $73 million of MedMen’s existing secured debt, Ascend will invest $35 million in cash in MMNY, and AWH New York, LLC will issue a senior secured promissory note in favor of MMNY’s senior secured lender in the principal amount of $28 million, guaranteed by Ascend, which cash investment and note will be used to reduce the amounts owed to MMNY’s senior secured lender.
Cowen & Co. Drops Coverage
Cowen & Co. discontinued coverage of MedMen in December of 2020. In her last report, Vivien Azer wrote, “MMEN delivered $20.7 mm in revenue from its 11operating CA stores, up ~34% QoQ and implying ~$1.9 mm per door in the quarter (implying$7.5 mm per door annualized), which we believe is roughly in line with management targets for CA store sales productivity. Meanwhile, NV sales were up triple digits sequentially(192%) due to the cycling of temporary store closures in the prior quarter. MMEN’s OakPark door in IL was the highest growing of the portfolio and we estimate this door could achieve ~$15 mm in revenue annualized.”
She added, “Despite the improvement, MMEN’s cost structure is still bloated and a heavy debt burden may force management to seek dilutive solutions.”
