Cannabis retailer MedMen’s financial troubles are a warning for the marijuana industry

PUBLISHED THU, MAR 28 2019 • 11:47 AM EDT | UPDATED THU, MAR 28 2019 • 6:53 PM EDT
Alex Berenson, special to cnbc.com

MedMen is the best-known cannabis retailer in the United States.

Yet, in what could be a warning for the American marijuana industry, it is racing to raise cash to cover its mounting losses.

Financial statements released in February showed that MedMen risked running out of money within months unless it raised more money. Last week, MedMen alleviated any immediate financial crisis by securing a $100 million credit line from a cannabis-focused investment company. The loan may ultimately be raised to $250 million if MedMen’s performance improves.

The terms of the financing are onerous — MedMen must repay it at 6 percent over Libor and issue warrants — but the fresh cash will buy the company time. Its shares, which had fallen almost 60 percent since October, have risen slightly since the announcement. At its current share prices, MedMen is worth about $1.6 billion, down from a high of roughly $3 billion last year.

Still, MedMen’s struggles show the challenge that cannabis companies face in operating in states where high taxes and dispensary restrictions have driven up prices for legal marijuana. In California, MedMen’s core market, highly regulated legal companies are struggling to compete for customers with illicit dealers who charge far less.

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