Some nicknames can be worn like a badge of honor. You can bet that U.S.-based MedMen Enterprises (NASDAQOTH:MMNFF) doesn't mind being compared to Apple when people refer to it as "the Apple Store of Weed."
The nickname isn't all that much of a stretch. MedMen's cannabis retail locations are upscale and well designed, just as Apple Stores are. And MedMen's revenue per square foot in its California cannabis stores beats that of Apple Stores.
MedMen stock has more than doubled so far in 2018, performing better than several more well-known Canadian marijuana stocks. The company recently announced plans to buy PharmaCann for $682 million, making it the biggest acquisition ever for the U.S. cannabis industry. Is "the Apple Store of Weed" a buy with this latest deal?
A transformative deal
MedMen currently operates 14 retail cannabis stores in three states: California, Nevada, and New York. The company also recently bought assets from Treadwell Nursery in Florida, picking up a license to operate up to 30 retail locations for dispensing medical marijuana in the state. In addition, MedMen is acquiring retail cannabis operations in Illinois and Arizona.
But the purchase of PharmaCann will be MedMen's biggest acquisition to date. PharmaCann ranks as one of the largest medical cannabis producers and dispensary operators in the U.S. It currently operates in Illinois, Maryland, Massachusetts, and New York. PharmaCann is also developing operations in Michigan, Ohio, Pennsylvania, and Virginia.
MedMen CEO and co-founder Adam Bierman referred to the deal as "a transformative acquisition that will create the largest U.S. cannabis company in the world's largest cannabis market." The combined company will have cannabis licenses in 12 states with the green light to operate up to 79 cannabis facilities -- 66 retail locations and 13 cultivation/production facilities.
It will take 6 to 12 months for MedMen to close the MedCann acquisition, though. The company must obtain regulatory approvals from local and state authorities in the areas where MedCann operates and holds licenses. If for some reason these approvals aren't received within 24 months, MedMen and MedCann will look to sell the assets to third parties.
While many investors are fixated on the Canadian recreational marijuana market, it's the U.S. where the big money is being made by the cannabis industry. MedMen's home state of California is projected to have annual marijuana sales of $7.7 billion by 2022 -- the biggest marijuana market in the U.S. and larger than Canada's medical and recreational marijuana sales combined.
With the PharmaCann acquisition, MedMen will claim operations in five U.S. states that are each projected to have annual marijuana sales of at least $1 billion within the next four years. Florida is projected to be the third-largest U.S. marijuana market, with Michigan ranking No. 5, Massachusetts No. 6, and Arizona No. 7.
But if we extend the time horizon out a few more years into the future, MedMen's opportunity is even greater. The 12 states where the company will have operations, assuming the successful close of its PharmaCann buyout, account for more than half of the $75 billion U.S. marijuana market projected by Cowen Group.
No other cannabis retailer on the scene right now will come close to matching MedMen's national presence. The company will also have vertical integration, including cannabis production and retail outlets, in all of the markets where it will operate except Maryland.
While its primary focus is the U.S., MedMen isn't forgetting about Canada. MedMen also has a partnership with Cronos Group. The two companies teamed up to launch retail cannabis stores throughout Canada to serve the country's legal recreational marijuana market.
Is the stock a buy?
MedMen's acquisition of MedCann is certainly a big deal. And it presents a big opportunity. But does that make the stock a buy?
The company's market cap is close to $3 billion already. This reflects expectations of tremendous growth, considering that MedMen's total sales in its latest quarter were only $19.2 million.
Investors should also note that MedMen plans to finance the PharmaCann transaction by issuing more shares. That will dilute the value of existing shares.
MedMen appears to be a stock to watch closely. Assuming the PharmaCann deal closes, MedMen could establish itself as the dominant player in the U.S. cannabis retail market. The stock is still too speculative to be a great pick to buy for most investors. However, "the Apple Store of Weed" could be even more worthy of its nickname in the near future.
Keith Speights owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.