Is MedMen Stock a Buy After Announcing a Change in Leadership?

A change in direction could be what MedMen Enterprises (CNSX:MMEN) needs to turn things around.

| More on:
Question marks in a pile

Image source: Getty Images

It’s not often that you see a stock get a boost in value because its CEO leaves the company, but that’s what happened with MedMen Enterprises (CNSX:MMEN) stock.

On Friday, the company announced that CEO and co-founder Adam Bierman would be stepping down and would no longer at the helm as of February 1. Shares of the struggling stock rose by 7% and at one point were up more than 16%. While pot stocks normally experience a lot of volatility, investors were evidently bullish on the news.

The stock has been in free-fall

Heading into February, MedMen stock has fallen by more than 85% over the past 12 months — an astounding fall for a company that once showed a lot of promise.

Its store designs, which resembled Apple‘s open layouts, looked to be a hit with consumers. And although the company has been generating strong sales, the problem is that its losses have continued to mount.

In its most recent quarter, the company used up US$44 million to fund its operating activities. While that’s an improvement from the US$50 million that it burned through in the prior year, it’s still a concerning level of cash.

With a lack of profitability and a falling share price, it makes for a potentially dire situation, as taking on debt may only saddle the company with interest costs and various restrictions, while issuing more shares will only drive the stock down even further.

It hasn’t been a fun ride for investors, which is why the change may be welcome. MedMen’s former CFO filed a lawsuit against the company last year, suggesting that Bierman and the company’s management was wasteful when it came to spending.

While the truth of that is uncertain and the company denies the allegations, the stock’s rally on news of Bierman departure suggests that investors also had concerns about MedMen’s leadership. While no replacement has been named, the company said that it would be considering both internal and external candidates for the role.

Does this make MedMen stock a buy?

The departure of Bierman could lead to a change in direction for the company, but until a new leader is appointed it may be unclear if this is a win for investors.

If a member of the company’s leadership team assumes the position, it may not be as drastic of a change as if a new, external candidate were to take over.

That said, given the company’s financial woes, even a new leader with an entirely different vision for the company may find it difficult to turn things around.

With or without Bierman, MedMen is still a risky buy today. Before deciding to buy shares of the company, investors should first wait for the company to release its second-quarter results, which are expected later this month.

Unless there’s a significant improvement to either the company’s profitability or rate of cash burn, investors may want to avoid buying shares of the pot stock for now.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple.

More on Cannabis Stocks

Cannabis grows at a commercial farm.
Cannabis Stocks

Down 99% From All-Time Highs, Is Canopy Growth Stock a Good Buy Right Now?

Canopy Growth stock is a high-risk investment due to its negative profit margins and challenging liquidity position.

Read more »

Marijuana plant and cannabis oil bottles isolated
Stocks for Beginners

Aurora Cannabis’ Reverse Stock Split: Is the Stock a Buy Today?

Cannabis stock Aurora (TSX:ACB) is consolidating shares once again, but what does this mean for investors?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Where Will Cannabis Stocks Be in 10 Years?

Cannabis stocks could see a huge shift upwards should marijuana be rescheduled in the U.S., but you can still buy…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Forget Canopy Growth: 1 Cannabis Stock With Far Less Risk

Cannabis stocks like Canopy Growth (TSX:WEED) haven't done well for quite some time, yet this one deserves a major boost!

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Is Canopy Growth Stock Worth Buying?

Canopy Growth stock (TSX:WEED) made a big move to consolidate its shares, but will this help the company move forward?

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Canopy Growth Corp: Will it Ever Be a Buy?

Canopy Growth Corp (TSX:WEED) keeps going lower. Will it ever find a bottom?

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Are Cannabis Stocks a Good Buy in November 2023?

Cannabis stocks have slumped a long way down in the last few years, so is November the time to get…

Read more »

A cannabis plant grows.
Cannabis Stocks

2 Top Cannabis Stocks to Buy on the TSX Today

Two cannabis stocks are the top picks as the market moves toward consolidation and stability.

Read more »