BREAKING DOWN THE RECENT MD&A OF MEDMEN ENTERPRISES INC.HIGHLIGHTS & NOTES
The California stores, including Abbot Kinney, produced an Annualized Per Square Foot Revenue of $6,188 (C$7,983), arguably the highest reported sales per square foot of any publicly reporting retailer, regardless of industry. Note: This is impressive because even long-standing retailers like Tiffany, Apple, Sony, Hollister are not pumping out Retail metrics like MedMen is right now in California.
For the quarter ending September 30, 2018, the State of California collected $52.4 million in excise taxes at a rate of 15%, accounting for $349.3 million in retail sales according to the California Department of Tax and Fee Administration. The Company’s California stores reported $18.5 million in revenue over the same period resulting in a 5.3% market share without yet opening any stores in Northern California. Further, of the 456 licensed retailers in the state, MedMen had 11 stores open in fiscal Q1 2019. Averaging out every retailer, each would hold 1.8% market share, thus showing our stores are generating 3 times the revenue over average. Note: Medmen stores represent 1.8% of the total stores in California, BUT they are responsible for 5.3% of ALL SALES accross the state. Which means that Medmen branded stores are doing 3 times the sales of other branded stores. No Pesticides or Herbicides: With no threat of insect, pests, or the plant diseases they can carry, there is no need for pesticides or herbicides and no residues on unpurified bulk material from MedMen’s plants. This provides at least two benefits. First, facilitating regulatory compliance by eliminating the need to quantify unwanted material residue throughout the production process, also resulting in cost savings. Second, end-user/consumer perception in the markets that MedMen’s customers are attracting may have a preference for material prepared without any contact with pesticides or herbicides. Note: While this MAY seem insignifigant, it makes a strong statement that Medmen actually cares about the customer and end-users of their products. No pesticides and residues is a highly sought after quality among smokers.
The initial transactions include three properties and are expected to generate approximately $12.5 million of proceeds to the Company after repayment of debt. Additional real estate assets in the Company’s portfolio are expected to be offered to Treehouse over the next 12 months. Note: Medmen owns prime real estate and plans to divest and sell it over the next 12 months to Treehouse. This could help prevent further dilution by providing Medmen with a source of income for carrying out operations.
Proposed Entrance into Arizona On October 2, 2018, MedMen announced a definitive agreement with WhiteStar Solutions LLC (“WhiteStar”) to acquire control of Monarch, a Scottsdale, Arizona-based licensed medical cannabis license holder with dispensary, cultivation and processing operations through the acquisition from Whitestar of Omaha Management Services, LLC. In addition, MedMen will acquire from WhiteStar their exclusive co-manufacturing and licensing agreements with Kiva, Mirth Provisions and HUXTON for the state of Arizona. In addition to operating a medical marijuana dispensary, Monarch operates a 20,000 square-foot cultivation and manufacturing facility in Mesa, Arizona. Monarch distributes branded products to over 60 dispensaries in the state. As consideration for the acquisition, the Company will pay approximately 80 percent in shares and 20 percent in cash. The share consideration will be satisfied by way of issuance of Class B Subordinate Voting Shares. The transaction is expected to close in late November or early December 2018 and is subject to customary closing conditions, including regulatory approval. On November 1, 2018, the Company entered into a definitive agreement to acquire control of Kannaboost Technologies, Inc. and CSI Solutions LLC, collectively referred to as “Level Up”. Level Up holds licenses for two vertically-integrated operations in Arizona, which include retail locations in Scottsdale and Tempe, as well as 25,000 square feet of cultivation and production capacity in Tempe and Phoenix. As part of the transaction, the Company will also receive a 40 percent interest in the K.I.N.D. Concentrates brand, which is currently distributed in over 90 percent of the dispensaries in Arizona. As consideration for the acquisition, the Company will pay US$33 million, of which approximately 51.5 percent will be satisfied in cash and 48.5 percent in Class B Subordinate Voting Shares. The transaction is expected to close within 90 days of announcement and is subject to customary closing conditions, including regulatory approval. Note: Within the next 60 days these two accusitions should close. This will give Medmen 55,000 Square Feet of Cultivation space in Arizona. This DOUBLES their production capabilities in a VERY short period of time. Best of all everything is already up and running and they will also aquire 3 NEW dispensaries.
Wholesale Channel Rollout: Cultivation and Production We currently have four (4) cultivation and production facilities in different stages of development, totaling 135,000 square feet. The first facility located in northern Nevada is comprised of a 45,000 square foot cultivation and production facility and sits on a total of 4.27 acres of land. The first batch of plants were planted during the first quarter of calendar 2018 the sale of which began during the third quarter of calendar 2018. The second facility located in Utica, New York is in the planning stages and will be comprised of a 45,000 square foot cultivation and production facility. The third facility located in Desert Hot Springs, California is under construction and will be comprised of a 45,000 square foot cultivation and production facility. The facility sits on 10 acres of land owned by the Company. The fourth facility is located on 5 acres of land in Eustis, Florida, which is approximately an hour drive north from Orlando, Florida. The Company is currently operating a temporary facility in Eustis and is in the planning stages for another Mustang-type factory. We anticipate introducing new branded products from our cultivation and production facilities gradually over 2018 and 2019 and in doing so expect to develop our wholesale channel. We expect that our capital expenditures will continue as we complete the rollout of our cultivation and production facilities. Note: Combining all of Medmen's production facilities. Nevada (45,000) + Arizona (55,000) + California (45,000) + New York (1,600) + Florida (1,600), We will have a total of 150,000 sq. ft of production capacity.