Big Reality Check for the Cannabis Industry
MedMen Enterprises, one of the largest players in the US cannabis market, got into some trouble recently, after a $682 million deal to acquire PharmaCann basically fell apart. What was supposed to be a monumental transaction has failed. Now, this is bad news for MedMen Enterprises, obviously, but it also doesn’t bode well for the market either.
In the rush and the euphoria of more and more favorable legislation reaching the news, getting passed, and being announced, it’s normal that investors rushed towards cannabis companies and stocks. However, now investors recognize two very important things – these grand judicial changes have slowed down, and many companies were simply overvalued.
By now the cannabis industry seemed like a strange free-for-all, a weird mishmash that looked relatively stable. However, now you’re going to see companies that bit off more than they can chew; those that need financing that simply won’t arrive, and who are, to say the least, in some trouble.
Like any new industry, there always comes a time when the bubble bursts. It began with people getting rich quickly and easily. It’s always nice being an early risk-taker who got lucky. However, luck will only get you so far, and now people with actual business acumen will, hopefully, rise to the top, while the rest will need to sink or learn how to swim.
The problem here is that investors and analysts need to figure out who is who. Namely, just like the MedMen/PharmaCann deal, Harborside bailed on Airfield Supply and Agris Farms, companies set, respectively, in San Jose and Walnut Oaks. The reason is simple and clear – too expensive, too dilutive, not worth people’s time or money.
The clearest piece of evidence here is MedMen’s Stock. Their shares were at $4.46 a year earlier, and now they are dwindling at about $1.42. There are also rumors that MedMen has fired their chief financial officer. Senior-level turnover is never a sign of stability, but it doesn’t need to be automatically negative.
PharmaCan itself has a strong and stable position in the Midwest and the Northeast, with 13 dispensaries. Furthermore, the said company is planning on expanding, rebranding its locations as Verilife, so the need for extra cash is very real. MedMen is also going strong with 17 licenses, and a plan to have 30 stores by the end of 2020.
Still, the failed deal should serve as a reality check that it’s not just smooth sailing for the cannabis industry. Every emerging industry will have its speed bumps sooner or later, and actually doing business, not just fighting legislation, is next in line for this new industry.