MedMen Stock Is Priced Incorrectly, Pot Grower to Surge
My investment bias has generally slowed toward the technology sector, and I have recently been looking into pot stocks as the legal recreational marijuana market picks up.
While Canada has fully legalized recreational marijuana, the scale is much smaller than in the U.S., which is quietly moving toward more acceptance of marijuana.
So far, 10 states and the District of Columbia have approved recreational marijuana, while medical marijuana is allowed in 35 states. The potential market in the U.S. for the next few years is in the tens of billions of dollars.
At present, the marijuana sector is dominated by major players including Canopy Growth Corp (NYSE:CGC), Cronos Group Inc (NASDAQ:CRON), Aphria Inc (NYSE:APHA), and Tilray Inc (NASDAQ:TLRY).
These are the top players, but if you are looking for a smaller integrated company that is focused solely on the U.S. market, MedMen Enterprises Inc (OTCMKTS:MMNFF, CNSX:MMEN) is worth a look.
Valued around $1.2 billion, MedMen is in sort of a sweet spot for pot companies: not too big, not too small.
And given that MMNFF stock just fell to a 52-week low of $2.32 on May 15 and is down a whopping 70% from its 52-week high of $7.57, the upside prospects are high for what could turn out to be a staggering return on investment.
MedMen stock failed to hold its sideways channel and is looking for support. Watch for a rally back to the channel.
A sustained breakout on the chart drove the stock toward $4.00–$5.00, followed by $6.00–$7.00.
Chart courtesy of StockCharts.com
An average 1.3 million shares of MMNFF stock were traded daily over the past three months, so the liquidity is good.
As mentioned earlier, MedMen Enterprises Inc is a vertically integrated company, meaning it cultivates the cannabis, manufactures the products, and sells those products via its network of 33 licensed facilities in 12 states.
MedMen has licenses for 82 stores, with key operations in Arizona, California, Florida, Nevada, and New York. It also may look into entering Canada.
Staggering Growth Bodes Well for MMNFF Stock
Like the majority of pot companies, MedMen Enterprises Inc is just beginning to ramp up its revenues and is expected to record massive growth over the next few years. Of course, the estimates are kind of a best guess and could easily change, which adds to the inherent risk of this stock.
MedMen grew its revenue from a mere $2.7 million in fiscal 2017 (ended in June) to $39.8 million in fiscal 2018. For fiscal 2019, the company could ratchet its revenues higher by 341.3% to $175.6 million, followed by an increase of 168.7% to $471.8 million in fiscal 2020. (Source: “MedMen Enterprises Inc. (MMNFF),” Yahoo! Finance, last accessed May 16, 2019.)
But while revenues have been surging, the pathway to profits will take a bit longer, since the marijuana business demands high initial capital expenditure.
A plus is that the company’s losses have been narrowing. MedMen is expected to cut its adjusted loss to $0.42 per diluted share in fiscal 2019, versus a loss of $2.77 per diluted share in fiscal 2018. (Source: Ibid.)
We could see MedMen move to profitability in fiscal 2020, given the high estimate of $0.05 per diluted share in profits.
While the pot sector is hot, there are many players. Some will succeed while others will fail, and some will be acquired if consolidation surfaces.
MedMen Enterprises Inc appears to be set for some strong growth, especially given that it is focused on the expected boom in the U.S. market.
Given its smaller scale, there is also a real possibility that MedMen stock could be acquired by another company in a move toward scale.