Chain stores have arrived in the legal marijuana industry — and it could be a billion-dollar idea.
MedMen, a cannabis retail company that operates 11 marijuana dispensaries across California, New York, and Nevada, has sold a minority stake of the company to a Canadian investment firm at a $1 billion valuation, making it the first US cannabis startup to achieve elusive “unicorn” status.
On February 14, MedMen closed a $41 million round of funding, according to Daniel Yi, vice president of corporate communications at MedMen. The Toronto-based firm Captor Capital led the round, buying 2.5% of MedMen for $25 million, in its first marijuana-related investment.
MedMen previously raised $135 million between two private equity funds.
Founded in 2011, MedMen set out with a goal of mainstreaming marijuana in America. Customers shop for marijuana edibles, vaporizers, and flower (the green stuff you smoke) around sleek wooden tables lined with iPads. Sunlight streams through the floor-to-ceiling windows.
Sales associates known as “budtenders” walk customers through the retail experience. They have an intimate knowledge of the products and make recommendations based on user preferences, like whether someone wants to get high at a concert or mellow out on the couch.
Yi compares what the company is trying to do for marijuana to what Nordstrom did for luxury brands and what Whole Foods did for organic grocery items.
“If you asked your average American, ‘What is your idea of a pot shop?’ they’re going to think of this dank place that’s not very well managed. Some kid with a tie dye t-shirt behind the counter looks very jaded as you walk into the store,” Yi said. “That’s the image that a lot of people have.”
“That stereotype still exists but is quickly changing,” he added.
MedMen is the marijuana industry’s original chain store
In seven years, MedMen has grown from one pot shop in West Hollywood to 11 dispensaries nationwide, with another four in the pipeline in Manhattan, Las Vegas, and Los Angeles.
The company employs about 700 people, with 100 workers based at the headquarters in Culver City, California. The rest work in cultivation, processing, operations, and retail nationwide.
MedMen doesn’t actually hold licenses to grow and sell marijuana at all of its 18 properties, which range from dispensaries to farms to processing facilities. Instead it raises capital through private equity and partners with licensed businesses to manage facilities on their behalf.
Typically, a lesser-known dispensary is made over with MedMen branding and the reputation that comes with it. MedMen takes a cut of the revenue. Yi wouldn’t reveal the management fee it charges license-holders.
This model allows MedMen to buy into markets, like New York, that issue a limited number of licenses for marijuana cultivation, distribution, and retail. In January 2017, MedMen acquired a financially troubled New York cannabis company — one of five licensed medical marijuana companies in the state at the time — so that it could grow and sell pot in the state.
Yi clarified that not all of MedMen’s properties are owned; some are just “managed.” Those dispensaries are run by MedMen employees, but the license stays with the original holder.
Investors are betting big on what MedMen is building
According to Captor Capital, the Canadian investment firm that just sunk $25 million into MedMen, the marijuana industry’s original chain store is an idea worth $1 billion.
Some observers in the industry have scoffed at MedMen’s new valuation.
The Marijuana Business Daily notes that determining the value of a cannabis company is highly subjective because of the newness of the industry, the wide range of regulatory structures from state-to-state, and the lack of major cannabis companies to use as benchmarks.
MedMen now wants to grow faster than traditional methods of raising capital allow.
In late 2017, the company made the decision to go public. Yi said it plans to list on the Canadian Securities Exchange, an alternative stock exchange in Canada that allows US cannabis companies to list, in the second quarter of this year.
After it goes public, MadMen will reportedly use the new funding to increase its retail footprint in California, Nevada, and New York.
California began sales of recreational marijuana in January and is now the largest legal market in America. It’s expected to generate billions in revenue in 2018.
According to Mashable, a MedMen shop in West Hollywood served over 23,000 customers in January. The company said revenue was up 200% compared to December, and up 500% from the year before. MedMen’s Santa Ana shop also doubled its December revenue in January.
Yi said the company’s unicorn status is justified by reports that the legal marijuana industry will reach $24.5 billion in sales by 2021 — a 28% annual growth rate — as marijuana legalization continues, markets mature, and the stigma against cannabis dissipates.
“When it all goes legal, people are going to buy their pot from a legal shop,” Yi said.