With the news a few months ago about Medmen divesting assets in Arizona, and a cultivation facility in Illinois.  After the most recent earnings call and the guidance they provided it became apparent Medmen was in for a major shakeup and they were willing to do whatever it takes to meet the goal of being profitable by the end of 2020.

Medmen is in a unique position where much of its revenues comes from one particular state, California.  They also have a growing presence in Nevada which has proven to be a great move for them.

Obviously with Illinois coming online for adult use plenty of excitement exists for the Medmen operations in that state. Another state that holds promise is Massachusetts, Medmen plans to open its Fenway location later this year and its anticipated to be a big hit (being the only dispensary within an earshot of Fenway Park). 

Boston – Fenway location coming soon

Another state that holds promise for Medmen is Florida. Albeit when/if the vertical integration mandate in the state gets lifted, and/or when adult use is legalized in that state.

One market that Medmen still currently operates in and showed great excitement for at one time is New York.  This is a state that since the inception of the program faced tremendous hardship. Not only was it the vertical integration mandate that made the program a disaster…It was the intense restrictions that the state laws imposed both for business and patients.

With 3 years having gone by since Medmen made its foray into New York… not much has changed. Medmen has struggled alongside its peers in the state. Medmen was kicked out of a NY Cannabis trade group and 2019 has come and gone. In 2019 NY Gov. Cuomo promised major reform to the program, but couldn’t garner enough support to make it happen. 2020 has rolled around and Gov. Cuomo yet again has promised major reform to the troubling outdated cannabis program in the state.

It feels like this may be the year that New York finally fixes its broken system. But is now the time for Medmen to find a way to exit?

In a recent sedar filing (dated Feb 7th 2019) regarding the refinancing of the term loan with Stable Road/Hankey. I noticed a clause that was added re: The New York license.

Stable Road/Hankey refinancing.

It claims if Medmen were to divest its New York assets, that the first $45m of proceeds would be used to pay back the loan owed to Stable Road/Hankey.

This could prove to be a great way for Medmen to offload an asset that never really got off the ground, as well as paying back some of the debt on its books.  Medmen shareholders (one of the initial funds) paid $26.5m for distressed Bloomfield industries back in 2016.

Medmen NY acquisition

The big question is…How much is a New York license worth now?

I was able to come across two scenarios where two MSO’s closed deals to purchase a license in New York over the last year.

Those two companies were Green Thumb Industries acquiring Fiorello Pharmaceuticals and Cresco Labs acquiring Gloucester Capital LLC (Valley Agriceuticals, LLC).

Greenthumb paid roughly $59.6m which consisted of $46m in cash and 1.7m shares. (Closed in August 2019)

Cresco Labs paid a total cash consideration of $37.5m and 8,660,200 shares, along with 2m warrants. (Closed in Oct 2019) If we multiply the 8,660,200 shares by $5.30 (the low of October)… You get a total value of roughly $83.4m.

With those two deals having commanded well over $55m and New York legalization closer than ever. I would imagine the value of the Medmen license could easily fall in between those two numbers if not possibly exceed them.

With the recent guidance from the company it seems apparent where the company should focus, and it sure as heck isn’t New York.

Medmen Company guidance issued Dec 2019

I can’t help but wonder if letting go of New York, and paying off debt,  would be the best outcome for Medmen shareholders and the long term viability of the company. 

With growth in all other states far exceeding the stagnation expected in New York. Its not worth getting attached to the money losing New York license and it might be wise to let it go for now. 

Medmen had great ambitions for New York… but they never truly came to fruition.  You can blame Medmen for some of those troubles, but you can also spend time digging through the New York Cannabis legislation and see for yourself how outdated and out of touch it is from other programs across the US.

As Medmen continues this restructuring, and puts a much stronger focus on core markets and profitability… I would expect Medmen to take a hard look at letting go of the New York business.

Time will tell. 

– Cosmo