The great promises of the cannabis industry have seemed to go up in smoke lately, as some of the biggest names in the industry pulled back guidance, laid off numerous employees and made changes in the C-Suite.
Not So Green: Acreage Holdings
The latest to hit the pause button was Acreage Holdings Inc. (ACRGF) , a company that was once described as having the largest cannabis footprint. Acreage just laid off 122 employees and killed both its Deep Roots and the Greenleaf Compassionate Care deals. Acreage also said it would temporarily halt wholesale operations in Iowa. The announcement means the temporary closure of a 5,000-square-foot cannabis cultivation and processing plant in southwest Cedar Rapids, where Iowa Relief produces medical marijuana capsules, topical ointments and tinctures. It is also closing one dispensary in Maryland and another in North Dakota. The company blamed the Covid-19 outbreak and other "uncontrollable factors."
It's hard to see how the pandemic is to blame for the Compassionate deal that had begun in 2018 and was never closed, or how the pandemic hurt a dispensary in North Dakota, a state that has no lockdown order.
While the pandemic has certainly hurt many companies, others are simply using it as a shield for poor decisions. Acreage also said it was suspending its previous 2020 financial targets and will provide a more detailed update on its first-quarter earnings call tentatively scheduled for May 13.
In February, Acreage delivered a full-year 2019 revenue of $74.1 million, a 251% increase over 2018. But the net loss for 2019 was a whopping $195 million vs. 2018's net loss of $32 million. In November, Murphy said, "The last six months have been challenging for the entire industry, but as I have emphasized since day one, this is a long game and I have never been more optimistic about the future of Acreage."
MedMen Enterprises Inc. (MMNFF) was called the cannabis industry's first unicorn when it went public. That title is bestowed on private companies that go public at a billion dollars. MedMen now has a market cap of $51 million. The company recently reported that its second quarter revenue increased to $44.1 million for the quarter, but the net loss for the quarter was a staggering $96 million vs. last year's $64 million. Earlier this year, a co-founder, Adam Bierman, stepped down as CEO. Bierman also gave up all of his Class A super voting shares as part of the deal.
Even Andrew Modlin, also the co-founder, who has stayed with the company, granted a proxy of all of his super voting shares to the company's executive chairman, Ben Rose until December 2020. Chief Operating Officer and Chief Technology Officer Ryan Lissack was named interim CEO. The board of directors has said that it is forming a committee to identify and appoint a new CEO.
MedMen's most recent stumble was its inability to pay vendors. When the news first began leaking out from companies stating that their bills were not getting paid and that the company was negotiating payment, MedMen claimed the stories were "not factual." But Bierman did concede to Green Market Report that, in fact, the stories were true.
The company was also offering shares to vendors in lieu of payments. The company laid off 190 employees in November 2019. MedMen had faced criticism for the founders extreme spending habits and its insatiable need for more capital. That most recent rounds of funding though came at the high cost of overseeing the management of the company as lender Gotham Green stepped in to assert its position.
Wilted: Green Growth Brands
Green Growth Brands Inc. (GGBXF) entered the cannabis industry ready to show those cannabis yokels how retailing was really done. These retail experts hailed from Victoria's Secret, which is owned by L Brands (NYSE: LB), and they claimed they knew more about retail than those stoners. Of course, you may recall Victoria's Secret continued to promote overly sexualized women in the era of MeToo and this tone deaf response to its customers has caused the company great pain.
Now, these wizards of retail at have now placed the company's CBD business into receivership. This is typically a move to avoid bankruptcy. Just a few weeks ago, Green Growth Brands closed down its CBD business, which was operating as the chain of Seventh Sense stores or kiosks. The company stated at that time that the stoppage in business was due to Covid-19, and the closing of malls and retail areas. But the company was struggling prior to the virus crisis.
Come to find out, employees weren't getting paid on time and the executives never said a word about that to shareholders. The employees also complained they didn't receive breaks and that there were inventory issues. The employees said that they had to sell at least $100 of product per day or face getting written up. Green Growth also tried to skip paying back wages after laying off all its employees until the word got out and then it somehow found the money.
Green Growth said it will continue to operate its cannabis business in Florida, Massachusetts, and Nevada. The company operates the The+Source dispensaries in the Las Vegas region, and has recently started a delivery service in response to Nevada Gov. Stephen Sisolak's March 20 order limiting dispensary operations in the state. None of the MSO subsidiaries nor any of their respective assets will be subject to the receivership order.
These companies all bragged about their size as the industry adopted a bigger is better philosophy. The race to have the most licenses, most states, most stores caused the companies to agree to overpriced deals. To be fair, some states have been slow to license operations and that has wreaked havoc on business plans. Plus, many deals were predicated on state approval. But these companies were more than happy to push out proforma numbers as if they were fact and those proforma numbers have all vanished in the night. Good riddance to pro forma earnings numbers and time to get real with the results.