The marijuana industry had itself an unforgettable year in 2018. While pot stock investors didn't do as well as they'd expected, the cannabis movement shook the Earth by gaining legitimacy.

To our north, Canada ended nine decades of recreational pot prohibition by becoming the first industrialized country in the world to give the green light to adult-use marijuana. Meanwhile, within the U.S., a handful of new states approved cannabis use in some capacity, the U.S. Food and Drug Administration gave the OK to its first cannabis-derived drug, and President Trump signed the Farm Bill into law, legalizing hemp and hemp-based cannabidiol products. In other words, the legal pot industry is here to stay, and that could mean big bucks for these businesses and investors.

Jars of labeled cannabis strains on a dispensary store countertop.

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MedMen highlights double-digit sequential sales growth in its latest quarter

There's little doubt among Wall Street and the investment community that sales for publicly traded pot stocks are set to soar. The question is whether these rapidly rising sales will minimize, or even reverse, recent losses. One such company garnering a lot of attention is U.S.-based vertically integrated cannabis dispensary MedMen Enterprises (OTC:MMNFF).

Exactly a week ago today, on Jan. 17, MedMen announced the preliminary revenue results from its fiscal second quarter, which ended on Dec. 29, 2018. Unlike Canadian pot stocks, which are expected to report sales figures that include the postlegalization environment this quarter, MedMen is operating entirely in the U.S. right now, so it has no demonstrable impact from Canada's green light. Of course, that didn't stop the company from delivering substantive sequential quarterly sales growth.

For the quarter, MedMen expects to report $29.9 million in sales, representing a 40% increase from the sequential first quarter. Although some of this increase derives from the opening of new locations, its eight California retail locations, which are among its most established dispensaries, recorded 27% sequential quarterly sales growth.

For those who may not recall, MedMen is also in the midst of a transformative deal that'll see it acquire privately held PharmaCann for $682 million. PharmaCann, like MedMen, is a vertically integrated dispensary with wholly owned growing facilities. According to MedMen's preliminary Q2 sales figures, PharmaCann logged $19.6 million in sales, or 10% more than in the previous quarter. On a pro forma basis, this would give the combination of MedMen and PharmaCann nearly $50 million in Q2 revenue, which is good enough for 26% sales growth from the sequential first quarter.

Additionally, the update provided by MedMen suggests that, were the deal closed now, it'd have 31 operational stores, as well as 77 retail licenses across a dozen states. MedMen is on track to open 16 locations in 2019, 12 of which will be in Florida. The Sunshine State boasts one of the most robust medical cannabis markets thanks to the older average age of its residents.

An accountant examining balance sheet figures with the aid of a calculator.

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There's another side to this story

In many ways, this preliminary report looks like a win for MedMen. It features rapidly rising sequential quarterly sales, an increase in its number of approved retail licenses, and solid sales growth in California, which is expected to grow into an $11-billion-a-year market by 2030. But the thing about preliminary revenue reports is they only tell half of the story.

While highlighting the good, MedMen makes no mention of its bottom line, which is probably no coincidence.

The company's fiscal first-quarter operating results, released in November, featured $21.5 million in sales and $9.8 million in cost of goods sold, leading to $11.7 million in gross profit.

However, opening new stores, constructing grow farms, maintaining existing locations, and making acquisitions isn't cheap. Looking at a year-over-year comparison, the company's general administrative expenses for the first quarter grew from $5.1 million to $65.7 million, with sales and marketing costs soaring to $4.8 million from $0.2 million. In total, operating expenses dwarfed revenue at $73 million. On an operating basis, and excluding fair-value adjustments on the company's biological assets (i.e., its cannabis plants), it would have lost about $61.4 million in Q1 2019.

These expenses aren't going to go away overnight. In fact, they're only going to grow as MedMen ramps up new store openings. Sure, it's about to add PharmaCann's sales to its top-line results, but I'd be willing to bet that PharmaCann is also losing a sizable amount of money each quarter. It wouldn't be out of the question that the combined company is losing close to $100 million each quarter on an operating basis.

A hundred-dollar bill on fire atop a lit stove burner.

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When the fiscal first quarter ended, MedMen had $63.5 million in cash and cash equivalents. In December, it raised $56.4 million in gross proceeds (75 million Canadian dollars) from a bought-deal financing. In other words, it gives MedMen around $120 million in cash and cash equivalents, not counting what PharmaCann might bring to the table. But this is hardly any solace if the company continues to lose close to $100 million on an operating basis every three months.

There's no doubt that the dispensary model will hold value at some point. You'll also have no argument from me that the upscale dispensary experiment, which focuses on the experience of the customer as well as the product, is working. MedMen's nearly $6,200 in sales per square foot at established stores is testimony to this. But there's no fundamentally logical reason to be a buyer of MedMen stock when share-based dilution to raise capital is almost a certainty at this point.

If there's a lesson to be learned here, it's that there's often more to marijuana stocks than what you're being told by management.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.