



Oct 10th 2018 – Medmen signed a binding letter of intent to buy Pharmacann in an all stock transaction valued at the time to be worth $682m USD ~$900m CAD.

On December 23rd 2018 they announced a definitive agreement had been signed. In this agreement it states Pharmacann upon closing of the transaction will hold about 25% of the newly formed company. This 25% of the company is based off the fully diluted share count at the time of closing. The shares will then be locked up for 6-12 months.

Here is where things get interesting…How does a low share price effect this deal?



If we take the most recent fully diluted share count from the CSE it says:

“The total number of outstanding Subordinate Voting Shares, assuming all such shares and units of such subsidiaries are redeemed for the listed class, would be 493,509,700 Subordinate Voting Shares. ” as of Aug 2nd 2019.

If we consider Medmen’s current fully diluted Market Cap: $898m USD

Current OTC price: $1.82usd

$1.82 x 493,509,700 = $898m USD



This would leave Pharmacann holders with 25% of a $898m USD company. That puts the final price on Pharmacann at ~$225m USD. Significantly less than the original $682m USD proposed back in October.



Where things get interesting again is when we look at New York. There is a possibility that New York may not allow Medmen to hold 2 licenses in the state. In this case Medmen/Pharmacann would look for a third party buyer.

If we look around for a value on a New York license we don’t need to look much further than Cresco Labs which announced last week they receive approval to acquire a New York license. They paid a little over $100 million in a mix of cash and stock.

NY operators ranked in this report https://www.greenmarketreport.com/these-are-the-top-new-york-cannabis-companies/ shows Pharmacann (Green) at the top, Medmen (Red) in the middle range, and the company Cresco acquired (Blue).

I imagine it wouldn’t be hard to argue that the Pharmacann NY assets are worth at least $100m considering the recent Cresco deal.

If we assume Pharmacann NY is worth $100m and we subtract that from the total agreed cost of Pharmacann (25% of Medmen)

Medmen shareholders would be getting the rest of Pharmacann assets for $125m.

If we look at the assets Medmen would be acquiring for $125m it would be hard to fathom Medmen over paid.

One last thing to keep in mind are the shares that begin to unlock in November.

If I am not mistaken these shares were issued around $1.00USD

These $1.00 shareholders have the most to lose from a Pharmacann deal closing at these low levels. It dilutes them.

Now you need to ask yourself:

Is Medmen worth what the current stock price suggests?

Is Pharmacann worth what Medmen would be paying if the deal were to go through at current prices?

Would this scenario avoid Goodwill impairments that seem to be inevitable with acquisitions in the Cannabis sector?

Would the original investors be more inclined to hold onto the stock and let the value appreciate?

Will Medmen actually stay this low before the Pharmacann deal closes?

If Pharmacann were to go through at these prices would that make both parties Medmen, and Pharmacann work harder to bring value to shareholders? I imagine both companies believe they are worth more than what the market currently believes.

How low will/can Medmen go?

I don’t have the answer to these questions with any absolute certainty, these are just some of the many questions I began asking myself. Do Your Own Due Diligence.

Edit: The Deal will start to move forward barring any set back by the DOJ by Sunday Sept 9th – (As stated in below text)

Medmen Pharmacann DOJ deadline

The DOJ has let the acquisition move forward as of Sept 10th 2019.