Creditors of cannabis operator MedMen Enterprises will meet in a few weeks as investors seek repayment for hundreds of millions of dollars in outstanding debt.
The cash-strapped company entered bankruptcy proceedings in Canada on Friday and placed its California retail assets in receivership, the first steps to unwind the business and sell off assets in liquidation.
The developments usher in the end of the company’s days as a marijuana multistate operator and cement perhaps the most precipitous downfall in the marijuana industry to date.
With creditors reporting more than 560 million Canadian dollars ($410 million) in claims, MedMen likely represents the largest failure in U.S. and Canadian marijuana retail history.
At one point, the company operated more than 20 stores nationwide, including about a dozen in California.
‘Inability to pay’
B. Riley Farber, a Toronto-based advisory firm, was appointed bankruptcy trustee.
In addition to vast sums it owes creditors, Los Angeles-based MedMen also owes millions in unpaid invoices to former workers, brands and service providers.
According to a news release, the company made the bankruptcy decision after assessing:
- Its dire financial condition.
- “Inability to pay” liabilities.
- “Anticipated enforcement actions of secured creditors.”
A meeting with creditors has been scheduled for May 14.
Creditors line up
According to bankruptcy documents, 11 secured creditors have claims in excess of CA$202 million ($148 million).
They include:
- Chicago-based Treehouse Real Estate Investment Trust, CA$101 million ($74 million).
- Los Angeles-based direct lender Hankey Capital, CA$82.1 million (CA$60 million).
- Chicago-based marijuana operator Verano Holdings, CA$1.3 million ($950,000).
The only unsecured creditor noted in bankruptcy filings is listed as Superhero Acquisition Corp., the owner of MedMen’s California assets, with CA$359 million ($263 million) in claims.
Total claims eclipse $410 million.
Through a 2021 deal with Superhero, Canadian marijuana license holder Tilray Brands acquired a majority position in MedMen’s amended convertible notes for $165.8 million.
In receiverships, secured creditors such as banks and those with asset-based collateral are paid first, while unsecured creditors often go unpaid.
California assets in receivership
MedMen’s California subsidiary, MM CAN USA, was placed into receivership in Los Angeles Superior Court, where it will dissolve and liquidate its California assets.
The company has seven provisional retail licenses and an annual manufacturing license, according to the Department of Cannabis Control (DCC), California’s chief marijuana regulator.
MedMen is believed to have sold or transferred the retail licenses for three storefronts – one near Los Angeles International Airport, one in West Hollywood and another in the Torey Pines neighborhood of San Diego.
New store owner?
A retail worker at the airport retail location told MJBizDaily last month that those locations are now operated by One Plant, the retail unit of Captor Capital Corp., a vertically integrated cannabis company based in Toronto.
Captor Capital CEO John Zorbas has declined to answer numerous MJBizDaily requests for comment.
California regulators could not confirm whether ownership of the three retail locations had changed after MJBizDaily filed an inquiry under the California Public Records Act on March 20.
One Plant lists seven California stores on its website in the cities of Antioch, Atwater, Castroville, Goleta, Lompoc, Salinas and Santa Cruz.
According to DCC data, MedMen has surrendered one California manufacturing license and let a distribution license expire.
More receiverships coming?
The company is exploring additional receivership proceedings in other U.S. states where it has cannabis business licenses.
Those states include Illinois, Massachusetts, Nevada and New York, according to CRB Monitor, a cannabis intelligence firm in Nashville, Tennessee, that tracks business licenses.
With Superhero Acquisition Corp.’s headquarters listed in Ontario, Canada, MedMen filed bankruptcy pursuant to Canada’s Bankruptcy and Insolvency Act.
The statute – one of two laws Canadian cannabis companies have utilized to resolve insolvencies – is designed to help debtors overcome financial challenges.
The other is the Companies’ Creditors Arrangement Act (CCAA).
An MJBizDaily report from 2023 found about 12% of filings under the CCAA through Dec. 15, 2023, involved marijuana companies or cannabis-related entities.
In the United States, plant-touching companies are ineligible for bankruptcy proceedings, given the federal ban on marijuana.
That’s why receiverships likely will become more frequent amid widespread defaults and soaring debt in the industry, most recently following the collapse of Herbl, once California’s largest marijuana distributor.
Beginning of the end
MedMen has been silent about its financial troubles for months.
MJBizDaily first reported in January that the Los Angeles-based company laid off personnel in its accounting and marketing departments.
The corporate layoffs took place on Jan. 26, two days after CEO Ellen Deutsch Harrison and Board Chair Michael Serruya resigned from their posts at the company.
Harrison was replaced by Richard Ormond, a Los Angeles-based attorney with expertise in finance and banking as well as cannabis regulations.
Ormond briefly served as chief restructuring officer but recently resigned from that post and was appointed receiver of MM CAN USA.
He did not immediately respond to MJBizDaily inquiries.
Closures and divesting assets
Shortly after the executive shake-up, MedMen started shuttering stores across the country, including outlets in Northern California, Nevada and Illinois, MJBizDaily confirmed.
On March 8, MJBizDaily reported the company had shuttered all but two of its stores in California.
MedMen has laid off more than 100 employees since Jan. 26, with many workers unaware of their terminations until they went into effect, former staffers told MJBizDaily.
“As a cannabis business – or any business – you need to treat your team and partners right,” said Nicholas Rinella, CEO of Hippos Cannabis dispensaries in Missouri.
In February 2023, MedMen warned about its cash reserves and said it was considering divesting assets in three states.
In December, the company announced it was exiting Arizona and Nevada by selling its assets in those markets to privately held MSO Mint Cannabis.
Delisting imminent
The company said in the Friday release that it will remain noncompliant with Canadian regulators and expects to be delisted.
Trading of MedMen shares – MMEN on the Canadian Securities Exchange; MMNFF on U.S. over-the-counter markets – was suspended months ago.
In January, the British Columbia Securities Commission – MedMen’s principal stock regulator – and the Ontario Securities Commission issued a general “failure to file” cease-trade order after the company missed filing deadlines for annual and quarterly reports.
MedMen’s entire board of directors resigned before the bankruptcy filings.
Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.
