MedMen Enterprises (NASDAQOTCBB:MMNFF) and PharmaCann have called off their blockbuster merger.
The high-end cannabis retailer had originally announced its plans to acquire multistate dispensary company PharmaCann back in October 2018. The deal was intended to double the number of states in which MedMen was licensed to produce and sell cannabis. The combined company was projected to hold licenses for more than a dozen production facilities and 66 retail stores.
"This is a transformative acquisition that will create the largest U.S. cannabis company in the world's largest cannabis market," MedMen CEO Adam Bierman said at the time. "The transaction adds tremendous scale to our vertically integrated business model by expanding our U.S. retail footprint across important growth markets while strengthening our cultivation and production capabilities."
Now, however, the two companies are backing away from their deal.
"The cannabis sector has evolved tremendously since we first announced the PharmaCann transaction and based on the current macro-environment and future opportunities that exist for our business, we believe it is now in the best interest of our shareholders to deepen, rather than widen, our company's reach," Bierman said in a press release.
As part of the merger termination agreement, PharmaCann will transfer some cannabis licenses and facilities in Illinois and Virginia to MedMen, pending regulatory approval. In return, MedMen will forgive approximately $21 million of PharmaCann's debt.
"Looking at the PharmaCann portfolio today, Illinois has emerged as the most attractive opportunity for our longer-term strategic growth plan," Bierman said. "The addition of those assets, without dilution, is a win for MedMen and our shareholders."
Judging by the performance of MedMen's stock since the announcement on Oct. 8, investors appear to disagree. Shares are down nearly 20% since news of the deal's cancellation broke.
MedMen's announcement that it had terminated chief financial officer Michael Kramer, which the company made in conjunction with its merger update, no doubt contributed to the decline. Kramer will be replaced by Zeeshan Hyder, who previously served as the company's chief corporate development officer.
Despite the turnover in its executive ranks and the operational turbulence it may face due to the merger's cancelation, MedMen says that it remains on track to break even on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of 2020.