MedMen Reports Second Quarter Fiscal Year 2021 Financial Results

MedMen Enterprises Inc. (“MedMen” or the “Company”) (CSE: MMEN) (OTCQX: MMNFF), a cannabis retailer with operations across the United States, today released its consolidated financial results for its second quarter fiscal 2021 ending December 26, 2020. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

“This past quarter was one of continued progress. We have continued to add depth to an already strong management team, we have maintained the support of our capital partners, and we continue to outpace the cost-cutting outlined in our turnaround plan,” said Tom Lynch, Chairman and Chief Executive Officer of MedMen. “Our company revenue growth temporarily slowed due to retail restrictions in California, but we see consistent momentum across our portfolio, and our significant gross margin expansion is a strong indicator of how we are continuing to build a platform for sustainable future profitability. Over the next several quarters we plan to accelerate our growth on the foundation of our strong brand recognition and the tremendous improvements we have made in operational efficiency and discipline.”

Second Quarter Financial Highlights:

• Revenue¹: Net revenue across MedMen’s operations in California, Nevada, New York, Illinois and Florida was $33.8 million for the second quarter, up 0.3% sequentially excluding Evanston.
• Gross Margin²: Company-wide gross margin rate was 53% in the second quarter compared to 47% in the previous quarter. Retail gross margin rate was 57% in the second quarter compared to 54% in the previous quarter.
• SG&A Expenses: General and administrative expenses of $33.8 million in the second quarter, a 47% decrease from the same period last year.
• Corporate SG&A²: Corporate SG&A excluding store pre-opening costs totaled $9.2 million in the second quarter, a 10% decrease from the previous quarter and 66% decrease from the same period last year, representing approximately $70 million in annualized cost savings compared to last year.
• Net Loss: Net loss was $68.9 million which included $24.0 million of tax provision expense, compared to a net loss of $93.2 million which included a tax provision benefit of $14.6 million in the same period last year.
• Adjusted EBITDA²: Adjusted EBITDA from continuing operations was a loss of $11.8 million for the second quarter compared to a loss of $11.7 million in the previous quarter.
• Retail Adjusted EBITDA²: Retail adjusted EBITDA margin was 17% for the second quarter.

Balance Sheet:

As of December 26, 2020, the Company had total assets of $503.6 million, including cash and cash equivalents of $7.5 million.

Capital Markets and Financing: 

• Senior Secured Term Loan: During the second quarter, the Company closed on $7.7 million in additional gross proceeds under its senior secured term loan with funds managed by Hankey Capital and Stable Road Capital and its affiliates.
• Unsecured Convertible Facility: During the second quarter, the Company closed $3.0 million through an unsecured convertible debenture facility with certain institutional investors.
• Senior Secured Convertible Financing: Subsequent to the quarter ended December 26, 2020, the Company closed on $10.0 million in additional gross proceeds under its senior secured convertible debt facility led by funds affiliated with Gotham Green Partners.

Operations by Market:

• California: California retail revenue across 11 store locations totaled $19.8 million for the second quarter. California retail revenue was trending up sequentially prior to the COVID-19 related retail capacity restrictions of 35% on November 20th and 20% on December 2nd.
• Nevada: The Company’s three locations in Nevada were negatively impacted by a severe reduction in tourism during the second quarter leading to a 13% sequential decrease in revenue.
• Florida: The Company’s four stores in Florida reported a 43% revenue increase sequentially.
• Illinois: The Company’s flagship store in Oak Park was the highest revenue store in the Company’s national portfolio. The Company is evaluating sites for a second location in the state.
• Massachusetts: The Company expects to open two stores in Massachusetts during calendar year 2021. The Company was granted a provisional adult-use license for both of its proposed flagship retail locations near Fenway Park and Newton.
• New York: The Company operates four medical dispensaries in the state, with a flagship location on Fifth Avenue near Bryant Park. The four stores reported a 38% revenue increase sequentially.

Management and Directors: 

• Chief Revenue Officer: On December 3, 2020, the Company named Tracy McCourt to the new role of Chief Revenue Officer to lead the omni-channel marketing strategy as well as the Company’s buying, merchandising and business intelligence efforts. A leader and pioneer in customer experience management for over 20 years, McCourt has developed in-store and online sales, product and marketing strategies for leading brands including Skechers, Guess, Murad, Frederick’s of Hollywood, and most recently Zappos.com.
• Chairman of the Board: On December 16, 2020, Tom Lynch was elected as Chairman of the Board of Directors. Lynch also serves as the Chief Executive Officer for MedMen and was elected to the Board of Directors in November.
• Chief Financial Officer: On December 17, 2020, the Company named Reece Fulgham as Interim Chief Financial Officer. A former CPA with Kenneth Leventhal & Company, Fulgham has over 30 years of accounting, turnaround management and restructuring experience. He has worked as an auditor, board member, interim operating manager and advisor to middle market companies such as Hollywood Video, Condor Systems, Whittaker Corp., Davis Wire Corp., Kinetics, West Coast Foods, National Dollar Stores, and Pronghorn Resorts. He is currently a managing director at SierraConstellation Partners.

Non-GAAP Financial Information:

This press release includes certain non-GAAP financial measures as defined by the SEC. Management believes that these non-GAAP financial measures assess the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. These non-GAAP financial measures exclude certain material non-cash items and certain other adjustments the Company believes are not reflective of its ongoing operations and performance. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision-making, for planning and forecasting purposes and to evaluate the Company’s financial performance. Management believes that these non-GAAP financial measures enhance investors’ understanding of the Company’s financial and operating performance from period to period, and enable investors to evaluate the Company’s operating results and future prospects in the same manner as management. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are included in the financial schedules attached to this press release. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP.

Definitions:

Retail Gross Margin Rate: Retail Gross Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP). Retail Gross Margin Rate (Non-GAAP) is reconciled to consolidated gross margin rate as follows: consolidated revenue less non-retail revenue reduced by consolidated cost of goods sold less non-retail cost of goods sold, divided by consolidated revenue less non-retail revenue. Retail Revenue is consolidated revenue less non-retail revenue, such as cultivation and manufacturing revenue. These non-GAAP measures provide a standalone basis of the Company’s performance as a cannabis retailer in the U.S. considering the Company’s long-term viability is correlated with cash flows provided by or used in retail operations.

EBITDA from Continuing Operations: Net Loss from Continuing Operations (GAAP) adjusted for interest and financing costs, income taxes, depreciation, and amortization. This non-GAAP measure represents the Company’s current operating profitability and ability to generate cash flow.

Retail Adjusted EBITDA: Retail Gross Margin (Non-GAAP) less direct store operating expenses, including rent, payroll, security, insurance, office supplies and payment processing fees, local cannabis and excise taxes, distribution expenses, and inventory adjustments. This non-GAAP measure provides a standalone basis of the Company’s performance as a cannabis retailer in the U.S. considering the Company’s long-term viability is correlated with cash flows provided by or used in retail operations.

Adjusted EBITDA from Continuing Operations: EBITDA from Continuing Operations (Non-GAAP) adjusted for transaction costs, restructuring costs, share-based compensation, and other non-cash operating costs, such as changes in fair value of derivative liabilities and unrealized changes in fair value of investments. This non-GAAP measure represents the Company’s current operating profitability and ability to generate cash flow excluding non-recurring, irregular or one-time expenditures in order to improve comparability.

Corporate SG&A: Selling, general and administrative expenses related to the Company’s corporate functions. This non-GAAP measure represents scalable expenditures that are not directly correlated with the Company’s retail operations.

Webcast Information:

A live audio webcast of the call will be available on the Events and Presentations section of MedMen’s website at: https://investors.medmen.com/events-and-presentations/default.aspx and will be archived for replay.

Calling Information:

Toll Free Dial-In Number: (844) 559-7829 
International Dial-In Number: (647) 689-5387 
Conference ID: 4282344