Another Cannabis Company Teeters on the Edge 

MedMed's CEO tried to give assurances last week. It didn't go so well.

Last week was a wild one for MedMen, the multistate cannabis retailer based in Culver City, California. As CEO Adam Bierman was getting ready to do a Reddit AMA ("Ask Me Anything") a character named Jason Spatafora tweeted out copies of emails that, Spatafora claimed, showed that the company was unable to pay vendors in cash, and was offering to give them shares of its depleted stock instead.

Spatafora, who trades in pot stocks and talks about them a lot on the Internet, calls himself "The Wolf of Weed Street," and seems to think of himself as something of a playah, yo. His title might carry a tinge of "irony," but I get the idea that, either way, he thinks it's way cool to be thought of in the same terms as Jordan Belfort, who did time for running a sleazy penny-stock scam and was later played by Leonardo DiCaprio in an Oscar-winning movie. I've never met Spatafora, so I don't know for sure whether he's like those guys who believe that Gordon Gekko and Blake (the Alec Baldwin character from "Glengarry Glen Ross") are the real heroes of their respective movies. But that was my suspicion when I first came upon him last week.

So I was slightly skeptical when I first saw his tweets, but not too much so because, if he were wrong, he would have been sued out of existence. And he was, in fact, 100 percent right: MedMen was trying to pay its vendors with shares in the company. (MarketWatch reported the same news not long after Spatafora's tweets). At the time MedMen was making that offer on Monday of last week, shares were trading at 44 cents apiece. As of Monday, they had slid even further, to under 39 cents, a far cry from their high in October 2018 of $6.49. That no doubt has made vendors more likely to consider the other options MedMen gave them: setting up a payment plan, or taking a big hit by accepting less than they are owed — perhaps 50 cents on the dollar.

The continuation of the stock's swoon may in part be a reaction to Bierman's AMA appearance, as well as a Q&A interview published on Friday by the Green Market Report, which covers the pot biz. His answers to the softball questions lobbed at him in the interview failed to connect. He was all over the place. He confirmed that the company was having trouble paying vendors, acknowledged that MedMen has gone through a quick succession of chief financial officers (never a good sign) and indicated that the company was renegotiating its debt with lenders.

But almost in the same breath, Bierman said: "This company has never been stronger. And: "Our cash position is very healthy, our balance sheet is strong."

Needless to say, if you can't pay your vendors with cash, that by definition means that your cash position is less than "healthy." Otherwise, you'd save yourself a lot of trouble and money by writing checks for the things you buy rather than diluting your shares by using them to pay your bills. And by definition, a company that is renegotiating debt and (as Bierman also stated) selling more stock into the market to raise capital does not have a "strong" balance sheet; it has a weak one. Precisely how weak, we'll find out next month, when MedMen issues its results for its second fiscal quarter. In November, it reported a quarterly loss of $35 million, about 2.5 times bigger than the loss it reported a year earlier.

Even with all this horrific news, it would be unwise to count MedMen out. The company, 10 years old, runs about 30 stores across the country, as well as large cultivation facilities. And it holds a lot of valuable cannabis licenses in a bunch of states. Bierman says those licenses are worth about $1 billion, which is more than what its stock is currently worth. And, despite last week's events, it has a strong brand. While the company is obviously having serious problems, that doesn't mean it's about to implode, as DionyMed did. Like a lot of cannabis companies, MedMen grew too big, too fast, as Bierman himself reluctantly admitted. Now, he said, the goal is "sustainability."

Meanwhile even while he was playing defense last week Bierman was still hawking MedMen stock, which he told Green Market Report was "cheap" compared to "where it will be" as the company pursues its restructuring plan, which involves selling off some assets and laying off employees. In recent months, the company has sold off licenses in several states — exiting Arizona entirely — and closed at least one store in Florida. It also has laid off about 200 employees, or about 20 percent of its work force.

Bierman was asked much tougher questions on Reddit, but what makes AMA different from interrogations from a reporter is that you can ignore questions if you want to. And Bierman ignored many. "MedMen CEO Adam Bierman Deflects in Reddit AMA" was the headline on the pot-news site Ganjapreneur.

In fairness, though, you can't answer all the questions on an AMA, and he did take on some tough ones, like the one from the guy (like many questioners, a shareholder) who noted Bierman's onetime $1.5 million salary and $4 million bonus, both figures way out of line for what other CEOs of similarly sized cannabis companies make. Bierman's salary now sits at $50,000, and he apparently has stopped taking bonuses. But, this guy declared, "it doesn't sit well with investors seeing you and your partner buying 11-million-dollar Beverly Hill homes next to Leo DiCaprio while the rest of us are taking huge losses."

Bierman didn't dispute any of that, but issued some more assurances that "going forward," MedMen would right the ship. Maybe he can get his neighbor Leo to help him — he has some experience with both penny stocks and sinking ships. 

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