Will MedMen Declare Bankruptcy Soon? Frank Segall Talks Distressed Debt
With cannabis stocks down over 60% from their peak and capital markets starting to dry up around the cannabis space, it is getting harder to raise money and keep “the valuation gravy train” going higher. This will put pressure on some cannabis stocks that are heavily in debt and burning through cash at an alarming rate. The prime example cited in the industry is the Adam Bierman lead MedMen. There has been much discussion about MedMed and their style in the cannabis industry, from South Park ridiculing their hypocrisy of blocking home grow cannabis legalization measures, to the alarming rate at which they burn through CFOs. MedMen stock has been on a dive since doing public and now faces some funding challenges. The stock opened at over $5.00 and is now barely over $1.00 at the time of this article being published.
If you follow Cannabis.net, we wrote the article, “Will MedMen be the First Major Cannabis Company to go Bankrupt?”. One problem is MedMed invested heavily in creating the “Apple Store of Weed”, and spent lavishly on high priced store locations and store designs. Instead of investing in the actual product and creating seriously great and unique cannabis strains and product, it was all about location and appearance for MedMed.
This week on “In the Weeds” with Jimmy Young, I got to ask cannabis and finance attorney, Frank Segall, from Burns & Levinson, what a MedMed bankruptcy filing would look like? Frank had said early in the call that capital markets are drying up for cannabis companies right now and that he had 5 to 6 groups of distressed equity and debt companies looking to jump into the cannabis space as soon as there was blood in the water. Distressed debt investors go into investments that are going bankrupt or having serious problems and look to buy the debt or equity for a few pennies on the dollar. They are basically the vultures or sharks, depending on how you view them, for bleeding corporate carcasses. An essential part of the financial landscape, but not loved by anyone but their shareholders. Here is a video and transcript of Frank talking about a MedMen bankruptcy situation.
Curt:
Are we going to see a first major cannabis bankruptcy? Someone like MedMen?
Frank Segall:
You know, it's a great question, and that's certainly what I was talking about, was the stress that we're starting to see. You cannot take advantage of the bankruptcy code, if you're a cannabis operator. So, you've got an issue there, what can you do? Well you got to look at the local states and every state is different, but basically, you're looking at either a wind down, you're looking at what's an ABC, called an assignment for benefit of creditors, if you can do that, or you're looking for receivership. So these are issues that when we're representing lenders, we address, you know, in the documentation because you have to be forward thinking on that regard. But it's a great question. A lot of people think that MedMen could very well be the first to go, into some sort of a wind down dissolution. I would assume that, you know, there'd probably be some sort of a restructuring or sale in that situation. But you definitely ... we are definitely starting to see distressed opportunities.
The full 29 minute interview with Frank is here.
MEDMEN CANNABIS AND TROUBLE, READ THESE..
WILL MEDMEN GO BANKRUPT, FOR A FIRST IN CANNABIS?
