What MedMen’s Financial Woes Means For The Cannabis Industry

cbdtrendzApril 1, 20196min680
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While MedMen is considered one of the largest retail marijuana chains in the United States, it’s financial problems, as of late, ones that have forced the company to secure hundreds of millions in credit to stay afloat should perhaps be a warning sign for others looking to jump inside the cannabis trade. Because though it is true that business of growing and selling weed is making some impressive strides, the laws and regulations behind it can prove challenging for shallow pockets.

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Some of the latest financial reports show that MedMen is now worth $1.6 billion, as opposed to $3 billion in 2018. This is at a time when the cannabis industry is supposed to be booming in more than half the nation for recreational and medicinal use. But high taxes and restrictions on dispensaries are creating a situation where companies like MedMen are losing money to the black market. This is especially true in California, where MedMen is headquartered and operates several locations.

RELATED: MedMen Faces New Lawsuit From Former CFO James Parker

A report from CNBC shows that MedMen lost $131 million during the last six months of 2018. This means the company lost $2 for every dollar of marijuana sold. But the average person wouldn’t notice that the company is swimming upstream by the illusion it puts on with its storefronts and advertising designed to change the stoner stereotypes and attract new and improved customers. MedMed has spent buku bucks trying to convince America that people who smoke marijuana are not the same longhaired, tie-dye shirt wearing, hippie class it has been for the past several decades.

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But Medmen is struggling to be the kind of cannabis company it wants to be. “At our current operating level, we will not have sufficient funds generated from operations to cover our short-term and long-term operational needs,” reads a financial report that was released at the end of February 2019.

Some of the company’s problems are not at all related to the cannabis market but stem from the operations itself. It was just earlier this year that Medmen’ CFO, James Parker, was named in a lawsuit which alleged racism. The allegation prompted the New York Cannabis Industry Association (NYMCIA) to sever ties with the company.

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There have also been some additional complaints filed, some of which allege the company has run schemes to keep stock prices up.

However, one of the most significant problems MedMen has faced is competing with black market marijuana. Although a taxed and regulated system is supposed to eliminate black market dealings, the high cost of the legal stuff still keeps a substantial amount of customers frequenting the underground.

“The unlicensed market continues to flourish, due in part to the competitive financial advantage such operations have over legal cannabis businesses,” California’s cannabis officials wrote in a report published last year.

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RELATED: MedMen Just Got Closer To Becoming ‘The Apple Store Of Weed’

Shockingly, 80 percent of California’s cannabis sales are still done in the black market. Customers “took a look at product prices, especially the heavy using, long-time consumer, and they said, ‘I know what the right price is, and that ain’t it.’,” said Tom Adams, managing director of industry analytics for BDS Analytics.

Medmen is still struggling to attract enough customers to cover its bottom line. All of those “new” cannabis consumers with the high-paying jobs and $50 haircuts that the company has been working so hard to charm seems to be more wishful thinking than reality. In fact, a report published last year by New Frontier Data and MJ Freeway shows that the largest customer base for weed purchases have lower incomes. It indicates that those cannabis customers which present the most significant opportunity for the cannabis industry—young, employed, high salaries—represent only 10 percent of the current spending.

Perhaps it’s time for cannabis companies to start marketing to stoners.

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