Craig Wiggins, co-founder of The Cannalysts, is direct and forthright when he likens the cannabis industry to the opening of Saving Private Ryan: “Only a few successful companies will make it off the beach.”
For the longest time, it was thought that MedMen, a chain of cannabis dispensaries from California, wasn’t just one of the few successes, but a leader in an industry that desperately needed one. It was special: a trailblazer, a standard to which other companies could look. MedMen was one of “those rare startups that exceed $1 billion in enterprise value,” reports POLITICO.
The company went public in June 2018 on a Canadian stock exchange with an implied valuation of $1.6 billion. Co-founder Adam Bierman, who styled himself as the “Steve Jobs of green rush,” says he wanted the company’s retail stores to invite “the world to walk in and see what the future looks like.”
And for a short time, he seemed to be getting what he wanted.
Success is seen, but not found
The brand was everywhere — from a spot on Comedy’s Central’s South Park to having an ad directed by Spike Jonze. Their retail offering was up to the mark too. The company was reported to have 32 stores in nine states, with a license to operate 70 stores in total.
“Coming from Canada where the product offering is pretty slim, it was cool to see that much product selection combined with good customer experience,” says Lisa Campbell, CEO of Toronto-based cannabis advertising and marketing platform, Mercari Agency.
Though successful on the surface, things weren’t going well within the company. A class-action lawsuit was filed in December of 2018 as employees alleged labor law violations. Investors weren’t happy either. Several shareholders sued the founders for self-dealing and other underhanded tactics.
Campbell calls MedMen “the poster child of the industry going bust. That’s the unfortunate result of going big, when you fall you fall very hard.”
Who runs your company matters
Prior to MedMen, co-founders Bierman and Andrew Modlin ran a branding firm. While the two were steps ahead when it came to identifying an opportunity. They erred when operating a successful business.
The company was accused of excessive spending. Bierman had a panic room installed in his house and company funds were being used to “buy custom Tesla SUV, ‘pearl-white’ Cadillac Escalades and a salary for Bierman’s personal marriage counsellor,” POLITICO reports. In January, Bierman resigned as the CEO.
In his role as a Windsor, Ont.-based analyst, Wiggins finds the mistakes made by MedMen to be all too familiar. “I am a banker, as a banker you do not want me running the company. I am not the right guy for that,” says Wiggins.
“That’s why we are seeing similar to MedMen level of distress in Canadian companies. It’s almost as if they bragged, scaled way more than required and are now back to cutting costs, laying off people and shutting down production facilities.”
You don’t have to spend money to make money
As a publicly-traded company, MedMen experienced a capital rush and with that the overconfidence that prompted them to keep spending.
“It’s easy to excuse the fact that it’s a new industry, it’s a nascent industry, that we need to spend money to make money,” says Harrison Stoker, vice-president of brand at Donnelly Group, a 20-year-old company that owns nine Hobo Cannabis stores across Canada. “But that doesn’t always work out and the bubble pops. Over the last six to 18 months, which is nearly the existence of the industry, we are starting to see such fall-out effects in the Canadian space.”
Stoker admits there’s a lot of similarity between Hobo Cannabis and MedMen style of operations, but with the key difference that they are still going strong.“We have an aggressive growth plan like MedMen, but it’s different,” says Stoker.
“We are not publicly traded, we are not spending money around, buying yachts and mansion and having lavish parties. MedMed was so focused on the future of divine profitability that they lost focus to get there they need to operate really well.”
Bigger doesn’t mean better
MedMen rose during the early days of cannabis, where the cash was free-flowing and everyone had high hopes for the industry. “The way things have turned out wasn’t exactly how we thought they would be,” says Campbell.
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