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Originally Posted On: https://financhill.com/blog/investing/medmen-stock-forecast

 

Medmen Stock Forecast: Effective January 1, 2020, Illinois consumers over the age of 21 can legally purchase marijuana for recreational use. The new law brings the total number of states permitting recreational use of marijuana to 11, and the substance is legal for medical use in 33 states.

Canada recently passed its first anniversary of successful legalization of recreational use of marijuana nationwide, and countries around the world are considering similar measures.

As more states – and entire countries – move to legalize medical and recreational use of marijuana, a variety of companies are competing for a share of the sizeable market. Projections call for the global value of legal marijuana sales to reach between $59 billion and $66.3 billion by 2025.

Which stocks are poised to succeed? We examine the Medmen stock forecast to see whether it’s on the shortlist of potential winners.

The Marijuana Business Landscape Is Fragmented

Emerging industries tend to be fragmented, and the current marijuana business landscape is no different.

Startups are attempting to gain footholds through innovative solutions, and more established companies are working to deepen and broaden their reach.

Consolidation is already a factor, and many competing businesses have joined forces through joint ventures, partnerships, mergers, and acquisitions to leverage the power of combining knowledge, expertise, and complementary operations.

As a result of this consolidation, some historically successful organizations are starting to see a decline in sales and profitability. While they were able to generate revenue in a limited field, they are unable to compete with newcomers who possess superior experience, skills, and funding.

An example of this phenomenon is MedMen, which once traded at approximately $6.50 per share. Today, MedMen has hit rock bottom from a stock price perspective, but the company is working on a turnaround. Investors are wondering whether now is the time to buy, in hopes of being part of a dramatic rebound.

What Does MedMen Do?

MedMen was founded in 2010 by two men who are passionate about the potential benefits of marijuana. They have focused on developing new applications and delivery methods for cannabis products, and they have built a team with deep expertise in the industry.

By the numbers, MedMen currently has a presence in nine US states, and it boasts 33 retail locations. The company possesses 70 retail licenses.

The general strategy behind MedMen’s retail presence was to become the Apple Store of marijuana dispensaries.

The brand launched sleek, modern establishments in visible locations, hoping to attract a particular high-net-worth clientele.

MedMen made massive investments in marketing and lobbying, to the detriment of other parts of the business. As a result, it was particularly vulnerable during the recent downturn in the larger cannabis industry.

Is Medmen Stock a Buy?

Since its October 2018 high point, MedMen share price has been on a downward trajectory.

One of the biggest disappointments was its failure to close a merger with PharmaCann. In an effort to return the business to profitability, MedMen recently announced a complete overhaul of its operational model.

As part of the restructuring, the company’s workforce was reduced by 40 percent. A number of locations were closed less than a year after their grand openings, which has caused some analysts, investors, and even consumers to question the brand’s viability.

 

MedMen has been up-front about its debt, which has amplified investor concern. The company is currently unable to pay vendors, and it is actively seeking alternative payment arrangements. One of the ideas it floated to creditors was payment in the form of stock.

Business leaders are focused on reinventing the business and returning it to profitability in short order. However, with so many questions around whether the plans will have the desired impact, MedMen is a particularly risky buy.

What are the Risks of Buying MedMen?

There are certain inherent risks in any marijuana stock – particularly around legal obstacles. While recreational use of the substance is legal in a handful of states and medical use is legal in a majority of the country, marijuana remains illegal on the federal level.

For the most part, the federal government has taken a hands-off approach to enforcing federal regulations in this area, but there’s no guarantee that approach will remain in place long-term.

Legalization of marijuana by the federal government is the only true assurance companies can have of avoiding legal complications.

 

Banking is particularly complex for marijuana businesses due to the federal prohibition. This issue is easing up, but to date, most of these companies still cannot accept credit cards.

On the financial side, there are tax issues to contend with as well, since most of the expenses associated with running a marijuana-related company cannot be deducted from federal returns.

Aside from the universal issues facing marijuana retailers, MedMen has an assortment of internal challenges. At the end of January, Founder and CEO Adam Bierman stepped down after months of struggle during which the company lost most of its value.

The interim CEO does have experience in the company, having served as its COO and CTO for some time. However, he is brand new to this leadership position, and it’s too early to predict whether he can deliver on investor expectations.

Medmen Stock Forecast Summary

All in all, a company with this many issues carries substantial risk for investors. It may succeed in turning around and generate significant profits for shareholders in the process.

However, incremental improvements are far more likely, and complete failure is a real possibility. This stock is best suited for investors with an attraction to long-shot bets who are fully prepared to lose some cash.

Better choices for those who want to add marijuana-related stock to their portfolios without incurring such risks include Innovative Industrial Properties, MediPharm Labs, OrganiGram Holdings, and Planet 13 Holdings.