The downfall of MedMen, California’s first billion-dollar cannabis company, highlights the inaccuracies of the state’s cannabis projections, according to industry experts. MedMen recently filed for bankruptcy in Canada due to its mounting debt, which buried the Los Angeles-based retailer just three years after it was valued at over $3 billion. The company’s decision to shut down operations and seek bankruptcy protection was made after careful consideration of its current financial condition and the anticipated actions of secured creditors.
Filing for bankruptcy protection in Canada is a viable option for some U.S. cannabis companies that lack access to Chapter 11 bankruptcy protection due to federal illegality. This move allows them to dissolve and liquidate assets, as evidenced by MedMen’s placement into receivership in the Los Angeles Superior Court. Most of the company’s executive leadership has already departed, including its chief financial officer, Amit Pandey. Despite attempts to reach out for comment, MedMen remains unavailable.
MedMen’s financial struggles can be traced back to the COVID-19 pandemic, which exacerbated its debt crisis. The company’s shares were downgraded in January to zero value, leading to the closure of many California stores and deep discounts on remaining products. Despite selling off assets and attempting to recoup some of the debt, MedMen ultimately failed to stay afloat.
These financial troubles indicate that California’s projections regarding cannabis demand were grossly miscalculated. Jerred Kiloh, president of the United Cannabis Business Association, states that if a company as large as MedMen with high demand couldn’t survive, it raises concerns about the rest of the industry. Kiloh attributes the market’s unsustainability to excessive regulations and high taxes, which far surpass those imposed on any other business.
The state’s cannabis licensing system has been plagued by backlogs and corruption. A recent state audit revealed numerous flaws that allowed for corrupt practices. Kiloh himself has been trying to obtain a retail sales license since 2018, but over 80% of state licenses are still provisional. The lack of effective leadership from the state government and the absence of a clear pathway to success have prompted many individuals to leave the industry.
MedMen is not the only cannabis retailer to face closure in California. High Times Holding Co., the publisher of a recreational marijuana magazine, recently walked away from its 13 dispensaries in the state. Other reports have noted the permanent closure of cannabis operations due to non-payment of taxes, rent, and health insurance premiums. Furthermore, cartels are encroaching on land in rural counties, while the black market for cannabis continues to thrive.
The demise of MedMen underscores the need for a reassessment of California’s cannabis industry. It serves as a cautionary tale for other retailers and highlights the urgent need for regulatory reform to ensure the industry’s long-term viability. Without significant changes, more retailers are likely to follow in MedMen’s footsteps, leading to further economic instability and an increase in illegal activities within the industry.
