On Thursday, MedMen Inc. (CSE:MMEN) (OTCQB:MMNFF) released their Q4 preliminary retail revenue results, claiming success and attributing it to the performance of their Southern California dispensaries. Seven of their eight locations reported over $17 million in revenue this year, and their retail markup averaged in at ninety percent. These numbers might seem impossible at first, but with 130,000 returning customers walking through the door - not to mention an additional 90,000 brand new customers - it is almost surprising the dispensaries didn’t make more.
That is why news of mistreating employees can make cannabis investors think twice about where they put their money. California budtenders walked out of MedMen stores this summer after having their tips unknowingly taken out of their paychecks. With more than $17 million in revenue, investors are left wondering what incentive could there be for taking tips? Moves like this could reflect badly on MedMen’s performance, but annual financial reports will not be released until October.
As investors wait for the rest of this year to play out, here are a few highlights from MedMen’s Q4 preliminary retail results.
The California Retail Strategy
Sometimes called the “Apple Store” of cannabis, MedMen hopes to become an industry standard, and their branding is focused on streamlining cannabis culture. Picking the California market as the place to start their retail chain is part of that strategy. Because even as the state missteps its way through the cannabis legalization process, Southern California’s liberal reputation and laidback, west coast lifestyle make it one of the ideal markets for retail cannabis stores in the United States.
“Retail is the key to the fast-evolving cannabis industry. It is where brands are built and where the margins can be maintained,” said Adam Bierman, MedMen chief executive officer and co-founder in a statement.
Setting up shop in California boosted MedMen’s average annual sales per square foot to over $6500. To put that into perspective, the average annual sales per square foot in America is $325. And that average has been dwindling over the past two decades. Big names like Apple and Tiffany & Co still see roughly $5500 and $2900 in annual square footage sales respectively, but traditional retail options are not the norm anymore. The fact that MedMen sees such high foot traffic could allude to the way cannabis consumers want to buy their weed, or at least where.
Location, Location, Location
The California market is not the end-all-be-all of the global cannabis industry. MedMen is opening dispensaries all across the United States, including Nevada and Florida. "For nearly a decade we have been positioning ourselves to capitalize on enormous market opportunities like this," said Bierman in a recent statement. "This [Florida] acquisition is right in line with our strategy of establishing a presence early on in high potential markets with limited licenses and large populations.”
He continued: “Florida is the third most populous state in the country with a medical marijuana market estimated to reach $1 billion in annual sales by 2020. MedMen has built the best-in-class brand, and we continue to invest in premium assets that solidify our dominant position in the most important cannabis markets in the world."
Bierman points out an important feature of the cannabis market. Customers want to feel comfortable shopping for marijuana. MedMen’s successful retail sales show that consumers feel comfortable buying pot from them. It doesn’t matter that they are not the biggest dispensary chain or even the best, but the numbers don’t lie. MedMen’s strategic locations are familiarizing the public with marijuana in a more positive way.
Investors Take Warning
According to the company’s retail announcement, these key retail locations will be a deciding factor in the evolving cannabis industry. Bierman emphasized MedMen’s California locations in the announcement, adding, “The rapid revenue growth in our California stores, only six months into recreational sales, is a solid reflection of our continued execution of our business thesis. We will remain focused on our strategy and the kind of growth that generates long-term value for our shareholders.”
But this mention of “rapid revenue growth” could be a red flag for some cannabis investors. Exponential growth cannot be maintained for long. When MedMen went public on the CSE earlier this year, the company sold $100 million worth of new shares, changing their valuation to well over $1 billion. That means MedMen more than doubled their worth in a little under two months. If that doesn’t raise an eyebrow, then founders Adam Bierman and Andrew Modlin modifying their exorbitant salaries to depend on MedMen’s sales goals should.
If the founders are willing to risk millions, MedMen must be confident in their ability to meet their Q4 sales goals for 2018. But a level of tact is expected of companies in the cannabis industry; something MedMen seemed to forget when they took employees’ money or belittled other retail markets. Positive sales growth and increased customer traffic are all fine and well for a retail business, but when the dust settles around this volatile market, cannabis consumers may expect a little more from their dispensary. In a market projected to be worth more than $28 billion by 2024, cannabis investors have to decide how much they are willing to risk on rapid (and somewhat vapid) revenue.
*Photo Sources: MedMen Instagram