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MedMen’s Florida expansion and the underwhelming promise of the “Apple store of weed”

On Friday, the “Apple store of weed,” MedMen Inc. (CSE:MMEN) (OTCQB:MMNFF) secured what they’re calling “prime retail locations” complete with long-term leases throughout Florida in the high-population cities of Miami, Key West, Palm Beach, and Fort Lauderdale. According to a statement, new dispensaries built on the sites are the foundation of the company's plan to maintain visibility in the United States most prominent cities.

MedMen holds the necessary license to operate in the Sunshine State following their acquisition of dispensary and cultivation assets from Treadwell Nursery in June. The deal, which cost the company upwards of $53 million included one of only 13 distribution licenses issued by Florida lawmakers, allowing them to open up to 30 dispensaries in the state. Per the agreement, MedMen also acquired Treadwell’s 5-acre cultivation facility in Eustis, strategically located near Orlando, right in the middle of Central Florida. It may make it easy to cater to the growing demand for medical marijuana in surrounding cities.

[Read More: Pure speculation: Aphria’s US divestiture clouds the cannabis stock market]

“For nearly a decade we have been positioning ourselves to capitalize on enormous market opportunities like this,” said MedMen Co-founder and CEO Adam Bierman in a statement last June. “This acquisition is right in line with our strategy of establishing a presence early on in high potential markets with limited licenses and large populations.

Investors have been keen on Florida ever since the state first legalized medical cannabis back in 2016.  Not only is it the fourth largest market for medical cannabis in the nation, but it’s also the third most populous state. And along with billions of annual tourists, it’s home to the largest elderly community in America. Florida has the potential to be one of the most significant recreational cannabis markets in the United States based on population alone.

“Our entry into Florida through this acquisition demonstrates our growing national footprint,” said Bierman in a statement on Friday. “Our real estate team is hard at work preparing to put MedMen branded stores in the most coveted locations in Florida – locations in highly desirable and defensible market areas with high foot traffic and proximity to popular brand retailers.”

The news comes on the heels of another announcement, just 24 hours earlier, that saw MedMen enter into a CAD$75 million bought deal equity financing to help fund their retail expansion efforts. And while seeing the company invest more in their US retail strategy does seem like a net positive for stockholders, it’s hard to shake the bad taste that their IPO (actually an RTO with Ladera Ventures Corp.) that brought them public in the first place.

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A purgatory of sorts for the cannabis industry today

While it’s no secret that CEO Adam Bierman and executives structured the deal in a way that focused more on their compensation than it did on the needs of potential shareholders, MedMen’s decision to list on the Canadian Securities Exchange — a purgatory of sorts for quick money in the cannabis industry today — shows that management is either wholly shortsighted or greedily focused on near-term monetary gains.

The truth is, for all of their success in California, and the potential they have as an already established brand in an overcrowded market, MedMen is extremely overvalued. In the last half of 2017, the company reported $8.4 million in sales with losses of $43 million. Before the most recent market rally, which is mostly just FOMO investors speculating following Constellation Brands’ investment in Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) MedMen hardly saw any growth, even with positive Q4 results.

[Read More: Why Cronos Group’s recent shakedown should be a warning to marijuana stock investors]

The US cannabis market is complicated. Right now, just as with many other states with legal weed, Florida is haunted by the Schedule I status of cannabis at the federal level. Deeming recreational and medical cannabis illegal at the federal level is creating bureaucratic problems for a lot of states and Florida is no different. Just last month, the state’s Democratic candidate for agriculture commissioner, Nikki Fried, lost two bank accounts due to her support for cannabis, including Wells Fargo closing her accounts a few weeks ago.

Although federal law is diminishing America’s chance to shine in the cannabis market, the US is still where investors expect to earn most o their money. And yet MedMen, with their upscale stores and recognizable brand is more concerned with a quick buck in Canada (or, allegedly from their employee's tip jars). MedMen could be so much more if it weren't so much less.

Florida’s cannabis market still shows promise

MedMen aren’t the only guys watching Florida’s cannabis market. iAnthus Capital (CSE: IAN, OTCQB: ITHUF) announced expansion plans in August. The expansion, which is through the company’s Florida-based GrowHealthy brand, includes opening fifteen dispensaries. Seven of these dispensaries are already leased, and a prototype shop is ready to be rolled out across the state once everything is finalized.

A statement released by the company showed their optimism about Florida and mentioned nothing of the legal woes plaguing would-be state officials. It’s unclear yet whether investors should trust this optimism, but as Florida steadily adds 1000 medical marijuana patients to its roster per month, it’s hard not to hope that the best of times could finally be on their way.

*Editor's Note: An earlier version of this article made mention of MedMen possibly listing on the Nasdaq. US companies are barred from listing on US exchanges due to the federal prohibition of marijuana.

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