MedMen Enterprises Inc. (MMNFF) said that early sales in California met expectations, as the Los Angeles cannabis producer and retailer signals some success in what's been a sluggish roll-out in the state's colossal adult use cannabis business.
Although it's the currently largest adult use cannabis market in the world -- outstripping Canada's entire national demand -- local licensing efforts and competition from illegal sales stalled California's industry, market players say.
MedMen on Thursday said its systemwide revenue for the fourth quarter ending June 30 totaled $19.2 million, describing it as "strong" and offering a glimpse of its store economics in the Southern California market.
The company said excluding its Abbot Kinney store in Southern California, which opened in early June, its other seven LA region retail booked $17.4 million quarterly revenue and an average $77.76 spend per transaction. Its average retail market markup over wholesale was 90%. About 130,000 customers returned from the previous quarter, and it gained 94,000 new customers. The company will provide full, audited fourth-quarter results in October.
MedMen spokesman Daniel Yi told Real Money the results matched company expectations. While some local jurisdictions have stalled, LA's local license issuance, where MedMen mostly operates, has been worked out for much of the year, he said.
Matt Karnes, the founder of cannabis industry analytics firm GreenWave Advisors, said that based on his estimates of public sales and dispensary data, MedMen is outpacing the statewide average between $200,000 and $250,000 quarterly revenue per store.
But MedMen and other companies continue to face competition from lower black market prices. The state's also collected less tax revenue than expected.
The California Department of Tax and Fee Administration (CDTFA) on Wednesday said second-quarter cannabis industry tax revenue totaled $74 million, up from $60.9 million in the first quarter. The combined $134.9 million six-month take missed Gov. Jerry Brown's office's $175 million projection.
Karnes said California's legal cannabis -- and its tax revenue -- would gain traction over time as illegal sales slowly phase out in the state.
"It's going to take time for the illicit market to transition into the legal market," Karnes said. "Law enforcement will take measures so that the illicit market continues to face disruption. Illegal sales are a hiccup, but it'll eventually be rationalized, and we'll see the full potential of the California market."
All told, the legal marijuana business has been expected to be one of California's fastest growing industries for the next five years, according to market data. The market is expected to reach $10 billion by about 2025, according to market sources cited in MedMen's public filings.
A study released Aug 8 by cannabis delivery service Eaze said 84% of Californians are very satisfied with the legal market thus far, but that one in five state residents has purchased cannabis from the illicit market in the past three months. The survey also concluded that a 5% decrease in the overall tax rate in California could drive 23% of illicit market supporters into the legal market.
To entice more buyers from unregistered stores, the state Legislature has been considering a measure to reduce the cannabis excise tax to 11% from 15%, but so far nothing has been decided.
For its part in California and elsewhere, MedMen plans to grow its own cannabis supply and integrate production with its retailing arm. It recently opened a 45,000-square-foot cultivation and manufacturing facility in northern Nevada. It's using the same design for a Desert Hot Springs, California facility expected online by early 2019. The company plans to build similar factories in New York, and possibly Florida.
