MedMen Enterprises (MMNFQ) 10-12G/ARegistration of securities (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

TO

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

Securities to be registered pursuant to Section 12(g) of the Act:

Class B Subordinate Voting Shares, without par value

(Title of class)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

TABLE OF CONTENTS

Introductory Comment

We are filing this General Form for Registration of Securities on Form 10 to register our Class B Subordinate Voting Shares pursuant to Section 12(g) of the Exchange Act of 1934, as amended (the “Exchange Act”). Once this registration statement is deemed effective, we will be subject to the requirements of Section 13(a) under the Exchange Act, which will require us to file annual reports on Form 10-K (or any successor form), quarterly reports on Form 10-Q (or any successor form), and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This registration statement on Form 10 includes “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities laws and United States securities laws (collectively, “forward-looking information”). All information, other than statements of historical facts, included in this registration statement that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking information. Forward-looking information is often identified by the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or similar expressions and includes, among others, information and statements regarding:

Readers are cautioned that forward-looking information and statements are not based on historical facts but instead are based on assumptions, estimates, analysis and opinions of management of the Company at the time they were provided or made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements.

Forward-looking information and statements are not a guarantee of future performance and are based upon estimates and assumptions of management at the date the statements are made including among other things estimates and assumptions about:

While the Company considers these estimates and assumptions to be reasonable, the estimates and assumptions are inherently subject to significant business, social, economic, political, regulatory, public health, competitive and other risks and uncertainties, contingencies and other factors that could cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking information and statements. Many estimates and assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct. Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, among others:

Readers are cautioned that the foregoing lists are not exhaustive of all factors, estimates and assumptions that may apply to or impact the Company’s results. Although the Company has attempted to identify important factors that could cause actual results to differ materially from the forward-looking information and statements contained in this this registration statement, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The forward-looking information and statements contained herein are presented to assist readers in understanding the Company’s expected financial and operating performance and the Company’s plans and objectives and may not be appropriate for other purposes. The forward-looking information and statements contained in this registration statement represents the Company’s views and expectations as of the date of this Form 10 unless otherwise indicated. The Company anticipates that subsequent events and developments may cause its views and expectations to change. However, while the Company may elect to update such forward-looking information and statements at a future time, it has no current intention of and assumes no obligation for doing so, except to the extent required by applicable law.

Readers should read this registration statement and the documents that the Company references herein and has filed with the Securities and Exchange Commission at www.sec.gov completely and with the understanding that the Company’s actual future results may be materially different from what it expects.

Item 1. Business.

CORPORATE STRUCTURE

MedMen Enterprises Inc. was incorporated in the Province of British Columbia under the Business Corporations Act (British Columbia).

The Company operates through its wholly-owned subsidiaries, MM CAN USA, Inc., a California corporation (“MM CAN”), and MM Enterprises USA, LLC, a Delaware limited liability company (“MM Enterprises USA”, or “the LLC”).

MM CAN converted into a California corporation from a Delaware corporation on May 16, 2018 and is based in Culver City, California. The head office and principal address of MM CAN is 10115 Jefferson Boulevard, Culver City, California 90232.

MM Enterprises USA was formed on January 9, 2018 and is based in Culver City, California. The head office and principal address of MM Enterprises USA is 10115 Jefferson Boulevard, Culver City, California 90232.

MM Enterprises USA was formed as a joint venture to own, operate and develop certain businesses related to the cultivation, manufacturing, distribution and sale of cannabis and cannabis-related products under the “MedMen” brand in jurisdictions where such cultivation, manufacturing, distribution and sale is authorized under applicable law. The contributors to the joint venture were MMMG, LLC (“MMMG”), a Nevada limited liability company, MedMen Opportunity Fund, LP (“Fund I”), a Delaware limited partnership, MedMen Opportunity Fund II, LP (“Fund II”), a Delaware limited partnership, The MedMen of Nevada 2, LLC (“MMNV2”), a Nevada limited liability company, DHSM Investors, LLC (“DHS Owner”), an Ohio limited liability company, and Bloomfield Partners Utica, LLC (“Utica Owner”) , a New York limited liability company (collectively, the “Joint Venture Parties”). Pursuant to the Formation and Contribution Agreement dated January 24, 2018 among the LLC and the Joint Venture Parties (the “Formation and Contribution Agreement”), the Joint Venture Parties contributed to the LLC 100% of their respective interests in certain of their assets. Specifically:

The Joint Venture Partners received 217,184,382 MM Enterprises USA Class B Units. The Agreement was entered into by and among MM Enterprises Manager, LLC, the sole manager of MM Enterprises; MMMG LLC (“MMMG”); MedMen Opportunity Fund, LP (“Fund I”); MedMen Opportunity Fund II, LP (“Fund II”); The MedMen of Nevada 2 LLC (“MMNV2”); DHSM Investors, LLC (“DHS Owner”); and Bloomfield Partners Utica, LLC (“Utica Owner”). On May 28, 2018, a reverse takeover of Ladera Ventures Corp. was completed by MM Enterprises USA (the “Business Combination”). This Business Combination resulted in a reorganization of MM Enterprises USA and Ladera Ventures Corp. pursuant to which Ladera became the indirect parent of MM Enterprises USA and Ladera changed its name to “MedMen Enterprises Inc.” On May 29, 2018, the Company’s Class B Subordinate Voting Shares began trading on the Canadian Securities Exchange (“CSE”) under the symbol “MMEN”.

References herein to “MedMen Enterprises”, “MedMen” or the “Company”, “we”, “us” or “our” as of a date or a period of time prior January 29, 2018 refer to the Joint Venture Parties. References on or after January 29, 2018 through May 28, 2018 refer to MM Enterprises USA and its subsidiaries. References on or after May 28, 2018 refer to MedMen Enterprises Inc. and its subsidiaries.

DESCRIPTION OF THE BUSINESS

General 

MedMen is a cannabis retailer based in the U.S. with flagship locations in Los Angeles, Las Vegas, Chicago, and New York. MedMen offers a robust selection of high-quality products, including MedMen-owned brands [statemade], LuxLyte, and MedMen Red through its premium retail stores, proprietary delivery service, as well as curbside and in-store pick up.

The Company currently operates 25 store locations across California (11), Florida (4), Nevada (3), Illinois (2), New York (4) and Arizona (1). The Company’s retail stores are located in strategic locations across key cities and neighborhoods in each of its markets. The Company has plans to open additional retail stores over the twelve months in the following cities:

The Company expects to continue strengthening its pipeline of stores through acquisitions, partnerships and applications for new licenses, with a focus on recreational states such as California, Nevada and Illinois and medical states such as Florida.

The Company previously announced its intention to sell its assets in Arizona in order to focus on other markets that the Company believes may have greater potential for near-term profitability . The Company is currently in discussions with various parties and expects to discontinue all Arizona-related operations by the end of fiscal year 2021.

In addition to expanding its physical store network in markets across the U.S., the Company plans to continue scaling its digital platform. The Company launched statewide same-day delivery in California on August 19, 2019. The Company launched delivery in Nevada on September 16, 2019. See “Retail Operations - In-Store Pickup and Delivery” for further information about the Company’s delivery operations.

The Company launched MedMen Buds, the Company’s loyalty program, on July 3, 2019. The program currently is offered in all of the Company’s stores in Arizona, Nevada, Florida and California and has more than 350,000 members. See “Retail Operations - Loyalty Program” for further information about the Company’s loyalty program.

MedMen currently operates five cultivation and production facilities across Nevada, California, New York, Florida and Arizona. Given the regulatory environment and lack of robust wholesale market in Florida and New York, the Company expects to continue cultivation and production activities in these markets. In California and Nevada, the Company is in discussions for the potential sale of its cultivation and production facilities so that the Company can focus on its retail operations. The Company has not entered into any definitive agreements at this time.The Company currently intends to sub-lease the California and Nevada facilities to a third party that would acquire and/or take over the operations for the cultivation and production facilities. As a result, the Company would no longer operate cultivation and production facilities in California and Nevada. The Company also operates a cultivation and production facility in Arizona. Although no definitive agreements have been entered into,, the Company is currently in discussions to sell the operation, and as such has classified its Arizona business as discontinued operations. As part of the discontinuation of Arizona operations, the Company will not have a cultivation and production facility in Arizona.

In New York and Florida, the cultivation and production facilities are or will be focused primarily on the commercialization of cannabis (both medical and recreational, as permitted under applicable laws) and, in select locations, the research and development of new strains of cannabis and cultivation techniques. The procedures at each facility place an emphasis on customer and patient safety, with a strict quality control process. See “Description of the Business - Cultivation and Production Operations” for further information about the Company’s cultivation and production operations.

The Company currently holds licenses within California, Nevada, Florida, Arizona, Illinois, New York and Massachusetts. The Company views Nevada, California, New York, Illinois, Florida and Massachusetts as providing ongoing opportunities for growth due to their market depth, current supply-demand dynamics and regulatory framework.

In addition to owning its own cannabis licenses and operations, the Company also provides management services to third-party cannabis license-holders. The Company currently has management services contracts at two licensed retail dispensaries in California. See “Management Services” for further information about the Company’s management services.

The Company is operated by an executive team that has significant experience in the cannabis industry and other analogous industries such as retail, technology, consumer packaged goods, alcohol and apparel. The Company had approximately 850 employees as of August 24, 2020 across its operating jurisdictions. See “Employees” for further information about the Company’s employees.

MedMen Enterprises USA has 41 wholly owned (either directly or indirectly) material subsidiaries. Such subsidiaries were incorporated or otherwise organized under the laws of California, Nevada, Delaware, New York, Florida, Arizona, Illinois, Massachusetts and Virginia. See “Corporate Structure” above.

Market Opportunity

Management expects the legalization of cannabis throughout the United States to continue to expand both recreationally and medically. There are currently eleven states in which the recreational sale of cannabis has been approved. These states are Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington. In these markets, recreational sales are expected to grow as cannabis retailers, as permitted by law, benefit from a shift in consumers from illegal sales to legal sales and from new cannabis consumers. MedMen plans on capitalizing on the projected increase in cannabis consumption in these recreational markets through both an expansion of its retail footprint in markets such as California, Nevada, Illinois and Massachusetts, as well an entry into other sizable recreational markets across the U.S.

With respect to medical marijuana, as more research centers study the effects of cannabis-based products in treating or addressing therapeutic needs, and assuming that research findings demonstrate that such products are effective in doing so, management believes that the size of the U.S. medical cannabis market will also continue to grow as more states expand their medical marijuana programs and new states legalize medical marijuana. Given MedMen’s existing operations in New York and Florida, MedMen is well-versed in operating within a medical-only market and will continue to seek opportunities to expand. These markets provide the Company a national platform to execute on its medical strategy, allowing the Company to serve both medical and recreational consumers.

Retail Operations

MedMen prides itself on providing a best in class, inclusive and informative environment where the customer can comfortably navigate its extensive selection of cannabis products with the assistance of highly trained employees.

MedMen operates its retail operations through a number of wholly-owned subsidiaries in California, Nevada, Florida, Arizona, Illinois and New York. MedMen currently operates 11 retail stores in California that serve both recreational and medical marijuana customers, three retail stores in Nevada that serve both recreational and medical marijuana customers, four retail stores in Florida that serve medical marijuana patients, two retail stores in Illinois that serves both recreational and medical marijuana patients and four retail stores in New York that serve medical marijuana patients. Of the Company’s 11 retail stores in California, the Company owns and operates nine retail stores and manages the operations of two through long term management services agreements. The Company also operates one retail store in Arizona. However, the Company is currently discussions to sell the operation and as such has classified its Arizona business as discontinued operations.

Expanding upon its omni-channel experience, the Company launched its same-day delivery platform in California on August 19, 2019. On September 16, 2019, MedMen’s delivery service was launched in Nevada. Over time, the Company expects to expand its delivery service in each of its states. Delivery service is available seven days a week, 365 days a year. Both MedMen Buds and MedMen Delivery cement the Company’s commitment to continuously evolving the consumer experience.

Real Estate Strategy

MedMen is focused on entering geographic markets which it believes has significant demand potential for cannabis (assessed through industry research and management estimates), and high barriers to entry, such as limited retail licenses, zoning restrictions and licensing requirements. MedMen’s real estate strategy is focused on prime locations with significant foot traffic and proximity to popular attractions (restaurants, malls, sports arenas, hotels, etc.). MedMen targets retail spaces with a footprint of 2,000 to 5,000 square feet, depending on the market and available real estate. MedMen utilizes both its internal real estate team and a network of real estate brokers to negotiate leases on behalf of the Company. MedMen typically prefers to secure long-term leases for its store locations instead of acquiring real estate. Where leasing of the applicable property is not possible, the Company will generally seek a financing partner to assign the purchase and sale agreement to prior to closing and after the Company has secured the license, and then enter into a leaseback transaction with that purchaser.

Branding and Marketing

MedMen utilizes consistent branding and messaging across its dispensaries under the “MedMen” name. In order to support its retail operations, MedMen has a dedicated marketing team that engages potential customers through in-store demos, social media and promotions, including the MedMen Buds loyalty program, which is described below.

MedMen continues to focus on growing market share and allocating capital to maximize shareholder value, which begins with providing a superior retail experience for its consumers. This includes building and supporting spaces where customers feel safe and educated, while discovering the benefits of cannabis.

The Company curates unique cannabis products and resources that reflect the interests of its customers.

MedMen works diligently to identify emerging cannabis trends and influencers within beauty, wellness, fashion, sports, and entertainment lifestyle verticals. As cannabis gains popularity across these categories, MedMen aims to become a leading lifestyle destination for the next-generation cannabis consumer.

In order to continue enhancing its customer experience, the Company recently launched MedMen Buds, a rewards program that encompasses over 350,000 individual participants and continues to grow daily, with members across California, Florida, Illinois, Arizona and Nevada. MedMen understands that in the current retail landscape, building loyalty with core customers is a key driver of continued growth. The Company’s understanding of what its customers value, and how it can meet those needs is critical in deepening its connection with its core customers.

Creating a true omni-channel experience for customers has been a priority for the Company since its inception. In support of that endeavor, the Company successfully launched a fully-owned and operated delivery service in the California and Nevada markets. MedMen is held to the highest standard as it releases “first-to-market” goods and services to cannabis consumers, and as such, the Company takes great pride in the initial positive feedback towards its enhanced omni-channel offering.

Banking and Processing

MedMen deposits funds from its dispensary operations into its banking partners in each respective market. The banks are fully aware of the nature of MedMen’s business and continue to remain supportive of MedMen’s growth plans. MedMen’s dispensaries currently accept only cash and debit card and do not process credit card payments. The Company believes that, as regulations continue to evolve, over time most forms of payment will be accepted, however, it is unclear exactly when this may occur.

Product Selection and Offerings

Product selection decisions are currently made by MedMen’s team of buyers, which negotiates and receives bids from potential brand vendors across all product categories including flower, vape pens, oils, extracts, edibles and pre-rolls. MedMen bases its product selection decisions on product quality, margin potential, consumer feedback and the ability for the respective brands to scale.

MedMen currently sells its own branded products in California, Nevada, New York and Florida under MedMen RED, [statemade] and LuxLyte brands. MedMen manufactures its own products in New York and Florida, and expects to leverage contract manufacturers in California, Nevada and Illinois for its own branded products.

MedMen’s retail locations in California, Illinois, and Nevada make available a variety of MedMen and third party (resale) cannabis and cannabis products. Cannabis and cannabis products for sale include but are not limited to: cannabis dry flower, concentrated cannabis oil, vaporizer forms of cannabis, cannabis edible products and other cannabis products.

MedMen is approved in New York to produce tinctures, vape pens, lotion, topical pain spray, ground flower and capsules. MedMen currently produces five (5) THC:CBD ratios for tinctures, vape pens, lotions, sprays and capsules and thus offers a total of fifteen products at each of its retail locations in New York, as follows: Wellness (0:1), Harmony (1:1), Awake (20:1), Calm (50:1) and Sleep (100:1).

Product Pricing

MedMen’s prices vary based on the market conditions and product pricing of vendor partners. Generally, MedMen strives to keep pricing consistent across all store locations within a state. Cannabis product pricing is  usually based on operating costs, materials costs, distribution costs, and quality and strength of ingredients.

The states of California, Nevada, Florida, Illinois and Massachusetts do not regulate pricing and licensed dispensing organizations within such states may set their own prices for cannabis and cannabis products. The state of New York does regulate pricing of all approved medical marijuana products.

Notwithstanding that most of the foregoing states do not regulate pricing of cannabis and cannabis products permitted to be sold in such states, many of them impose taxes on the sale of the same, as follows. Permitted products sold:

In-Store Pickup and Delivery

MedMen offers in-store pickup in most California and Nevada retail locations, accessible from MedMen’s website. Measures to enhance this offering and expand its availability into certain of the Company’s other operating states, where permitted under applicable laws and regulations, are underway.

The Company launched statewide same-day delivery in California in August 2019. The Company launched delivery in Nevada in September 2019.

Loyalty Program

MedMen launched its new loyalty program, MedMen Buds, in July 2019. In addition to providing exclusive access to sales and discounts, members of MedMen Buds earn points for every purchase that lead to rewards. MedMen Buds is currently live in all of the Company’s stores across California, Nevada, and Florida and counts over 350,000 members.

Inventory Management

MedMen has comprehensive inventory management procedures, which are compliant with the rules set forth by the California Department of Consumer Affairs’ Bureau of Cannabis Control (“BCC”) and all other applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict control over MedMen’s cannabis and cannabis product inventory from delivery by a licensed distributor to sale or delivery to a consumer, or disposal as cannabis waste. Such inventory management procedures also include measures to prevent contamination and maintain the safety and quality of the products dispensed at MedMen’s retail locations. MedMen understands its responsibility to the greater community and the environment and is committed to providing consumers with a consistent and high-quality supply of cannabis.

Managed Dispensaries

MedMen uses the same proprietary, best-practices policies and procedures in both owned and managed dispensaries in order to ensure systematic operations and consistent customer experience. By design, a customer or employee should notice no distinct differences between owned and managed stores. Additionally, MedMen enters into long-term management services agreements, as further described under “Management Services” below.

Cultivation and Production Operations

MedMen currently operates five cultivation and production facilities across Nevada, California, New York, Florida and Arizona. Given the regulatory environment and lack of robust wholesale market in Florida and New York, the Company expects to continue cultivation and production activities in these markets. In California and Nevada, the Company is in discussions with operating partners for its cultivation and production facilities so it can focus on retail operations. The Company has not entered into any definitive agreements at this time. The Company currently intends to sub-lease the California and Nevada facilities to a third party that would acquire and/or take over the operations for the cultivation and production facilities. As a result, the Company would no longer operate cultivation and production facilities in California and Nevada. The Company also operates a cultivation and production facility in Arizona. Although no definitive agreements have been entered into, the Company is currently in discussions to sell the operation , and as such has classified its Arizona business as discontinued operations.

In New York, Florida and Arizona, the cultivation and production facilities are or will be focused primarily on the commercialization of cannabis (both medical and recreational, as permitted under applicable laws) and, in select locations, the research and development of new strains of cannabis and cultivation techniques. The procedures at each facility place an emphasis on customer and patient safety, with a strict quality control process.

Nevada (Mustang)

MedMen operates a cultivation and production facility in northern Nevada. The combined facility is comprised of a 30,000 square foot cultivation facility and a 15,000 square foot production facility and sits on a total of 4.27 acres of land. The 30,000 square foot high-tech Dutch hybrid greenhouse allows for 22,000 square feet of canopy space. The production facility includes state-of-the-art production and extraction equipment.

California (Desert Hot Springs)

MedMen operates a cultivation and production facility in Desert Hot Springs, California. The combined facility is comprised of a 30,000 square foot cultivation facility and a 15,000 square foot production facility and its design is based on the Mustang facility.

New York (Utica)

MedMen operates a temporary cultivation and production facility in Utica, New York in order to service medical marijuana patients in the state through its master license, which allows for cultivation, production and retail sales.

Florida (Eustis)

MedMen operates a temporary cultivation and production facility in Eustis, Florida, which is approximately an hour’s drive north from Orlando.

Arizona (Mesa)

The Company also operates a cultivation and production facility in Mesa, Arizona. However, the Company is currently in discussions to exit the Arizona market and as such as designated its Arizona business as discontinued operations. 

Management Services

In addition to owning its own retail licenses, MedMen has signed long-term management services contracts with third-party license owners seeking MedMen’s management services. Management services include the use of the “MedMen” brand, retail operations support, human resources, finance and accounting, marketing, sales, legal and compliance. MedMen currently has two management services agreements in place with license owners in California. The two managed dispensaries are located in Venice Beach (Abbot Kinney) and the Los Angeles Airport area.

The management services agreements are typically 30 years in length with 10-year renewals and significant penalties if an operator sells its interest in a managed licensed entity (20% of net sale price of licensee with respect to a change of control transaction). The management services agreements currently in place comprise of the following fees: (i) 1.5% of gross revenue for marketing and soft costs, (ii) US$20,000 per month shared services fee, (iii) 25% of monthly EBITDA, (iv) 1.5% of construction budget for construction design services, and (v) 5% of construction budget for construction management services.

Employees

As of August 24, 2020, MedMen had approximately 850 employees across its operating jurisdictions, approximately 125 of which were employed at the corporate level. The remaining employees are employed at retail, cultivation, production, quality assurance/quality control and supply chain/distribution.

MedMen is committed to:

MedMen is committed to all of the above without regards to race, ethnicity, religion, color, sex, gender, gender identity or expression, sexual orientation, national origin, ancestry, citizenship status, uniform service member and veteran status, marital status, pregnancy, age, protected medical condition, genetic information, disability, or any other protected status in accordance with all applicable federal, state, provincial and local laws.

MedMen’s employees are highly-talented individuals who have educational achievements ranging from Ph.D, Masters, and undergraduate degrees in a wide range of disciplines, as well as staff who have been trained on the job to uphold the highest standards as set by MedMen. It is a requirement that all of MedMen’s employees pass background checks and drug screening. MedMen recruits, hires and promotes individuals that are best qualified for each position, priding itself on using a selection process that recruits people who are trainable, cooperative and share its core values as a company.

In addition, the safety of MedMen’s employees is a priority and MedMen is committed to the prevention of illness and injury through the provision and maintenance of a healthy workplace. MedMen takes all reasonable steps to ensure staff is appropriately informed and trained to ensure the safety of themselves as well as others around them.

MedMen partners with the United Food and Commercial Workers (the “UFCW”). The UFCW is a national labor union that represents cannabis workers throughout the United States. The eligible staff of all current retail locations of MedMen in California is represented by the UFCW. MedMen entered into a collective bargaining agreement with UFCW Local 770 and its sister locals in Southern California in 2018 and has expanded that relationship to include UFCW Local 5 in Northern California. In New York, MedMen has entered into a collective bargaining agreement with the Retail, Wholesale and Department Store Union, a division of the UFCW, which represents MedMen’s cultivation and retail staff in New York state.

Competition

With respect to retail operations, MedMen expects to compete with other retail license holders across the states in which it operates, and additional states, as it expands its retail operations into those states either organically or by way of acquisition. Many of MedMen’s competitors in the markets in which MedMen operates in are small local operators. In certain markets such as Los Angeles, there are also a number of illegally operating dispensaries, which serve as competition. In addition to physical dispensaries, MedMen also competes with third-party delivery services, which provide direct-to-consumer delivery services.

Further, as more U.S. jurisdictions pass state legislation allowing recreational use of cannabis, the Company expects an increased level of competition in the U.S. market. For example, since January 1, 2018, the legalization of recreational cannabis in California has spurred an increase of new entrants. A number of companies listed on the CSE are expanding operations to states that have decriminalized cannabis consumption. The increasingly competitive U.S. state markets may adversely affect the business, financial condition, results of operations and prospects of the Company.

Intellectual Property

MedMen has developed numerous proprietary technologies and processes. These proprietary technologies and processes include its seed-to-sale software, cultivation and extraction techniques, and cultivation equipment and irrigation systems. While actively exploring the patentability of these techniques and processes, MedMen relies on non-disclosure/confidentiality arrangements and trade secret protection.

MedMen has invested significant resources towards developing a recognizable and unique brand consistent with premium, high-end retailers in analogous industries. To date, MedMen has 13 registered federal trademarks with the United States Patent and Trademark Office, three registered trademarks in Mexico, one registered trademark in California, sixteen registered trademarks in Nevada, three registered trademarks in Florida and three registered trademarks in New York. All U.S. federal registered trademarks are further described below.

MedMen’s in-house and outside legal counsel vigorously monitor and swiftly respond to potential intellectual property infringement. Additionally, MedMen maintains strict standards and operating procedures regarding its intellectual property, including the regular use of non-disclosure, confidentiality, and intellectual property assignment agreements.

Trademarks

As of the date hereof, MedMen has registered the following 11 federal trademarks in the United States, including the “MedMen” name itself, related logos, and design marks distinctive to MedMen’s brand:

All federal registered trademarks in the United States described above are subject to renewal 10 years from the date of registration.

UNITED STATES REGULATORY ENVIRONMENT

Federal Regulatory Environment

The federal government of the United States regulates controlled substances through the CSA, which places controlled substances on one of five schedules. Currently, marijuana is classified as a Schedule I controlled substance. A Schedule I controlled substance means the Drug Enforcement Agency considers it to have a high potential for abuse, no accepted medical treatment, and a lack of accepted safety for the use of it even under medical supervision. Overall, the United States federal government has specifically reserved the right to enforce federal law in regards to the sale and disbursement of medical or adult-use marijuana even if such sale and disbursement is sanctioned by state law. Accordingly, there are a number of significant risks associated with the business of the Company and unless and until the United States Congress amends the CSA with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a significant risk that federal authorities may enforce current federal law, and the business of the Company may be deemed to be producing, cultivating, extracting, or dispensing cannabis or aiding or abetting or otherwise engaging in a conspiracy to commit such acts in violation of federal law in the United States.

The following table provides a list of the licenses granted to and disclosed as applied for by the Company.

* A renewal application has been submitted by the Company in respect of the noted license/permit. The license/permit remains effective during the renewal process. The Company expects to receive a renewal for such a license in the ordinary course of business.

Disclosure that a license has been granted to or applied for by the Company does not imply that all required regulatory steps have been satisfied to operate a cannabis facility under that license, as licensing commonly requires multiple levels of approval at the state and local level, as well as securing compliant real estate, and licenses listed as having been granted are often provisional in nature.

The Company’s operations are in compliance with applicable state laws, regulations and licensing requirements. Additionally, the Company uses the same proprietary, best-practices policies and procedures in its managed dispensaries as in its owned dispensaries in order to ensure systematic operations and, as such, to the Company’s knowledge, the dispensaries that the Company manages are in compliance with applicable state laws, regulations and licensing requirements.

Nonetheless, for the reasons described above and the risks further described under the “Risk and Uncertainties” section herein, there are significant risks associated with the business of the Company. Readers are strongly encouraged to carefully read all the risk factors contained herein.

The following sections describe the legal and regulatory landscape in respect of the states in which the Company currently operates and as such in which it is currently contemplated that the Company will be operating upon completion of announced transactions.

While the Company’s compliance controls have been developed to mitigate the risk of any material violations of a license arising, there is no assurance that the Company’s licenses will be renewed in the future in a timely manner. Any unexpected delays or costs associated with the licensing renewal process could impede the ongoing or planned operations of the Company and have a material adverse effect on the Company’s business, financial condition, results of operations or prospects.

ARIZONA

Arizona Regulatory Landscape 

The Arizona Medical Marijuana Program (the “AZDHS Program”) is governed by Title 9; Chapter 17 Department of Health Services Medical Marijuana Program (the “AZDHS Rules”) and A.R.S. § 36-2801 et seq., as amended from time to time (the “Arizona Act”) (the AZDHS Rules and the Arizona Act collectively referred to herein as the “AMMA”). The Arizona Act, which was approved by the Arizona voters in 2010 provides the legal requirements and restrictions in conjunction with the applicable rules, guidelines and requirements, promulgated by the Arizona Department of Health Services (“AZDHS”). The AZDHS Program provides for a limited number of Medical Marijuana Dispensary Registration Certificates (each, an “Arizona License”). The program currently allows 131 Arizona Licenses. A variety of product types are allowed in the state including medical marijuana and manufactured and derivative products which contain medical marijuana.

Licenses

Arizona state licenses are renewed biennially. Licensees are required to submit a renewal application, an annual financial statement, an audit of the annual financial statement prepared by an independent certified public accountant for the previous licensing period and fees outlined in the AZDHS rules. There is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner along with the necessary supporting documents, and regulatory requirements are met, the licensee would expect to receive the applicable renewed license in the ordinary course of business.

Regulations

In the state of Arizona, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. A single license holder is provided with the ability to cultivate, harvest, process, transport, sell and dispense cannabis and cannabis products, and is not required to participate in all of the allowable activities. Delivery is allowed from dispensaries to patients.

Reporting Requirements

The AZDHS has not selected a state mandated seed-to-sale system at this time. Licensed entities are permitted to choose their own provider or to track marijuana products from seed-to-sale using proprietary methods. The state however, tracks patient dispensing limits through a proprietary state system. Although there are no periodic reporting requirements to the state, full seed-to-sale tracking is required by all licensees and is periodically audited by the AZDHS. Additionally, all sales transactions are manually entered into the state dispensing tracking system at the time of transaction.

COVID-19

Medical Marijuana dispensaries were not explicitly identified as essential businesses in the Governor’s March 23, 2020 executive order outlining essential services. However, dispensaries continued to operate as they were considered essential as part of Arizona’s healthcare and public health operations sector. Licensed dispensaries have remained open during the stay-at-home order.

Businesses that physically operate in Arizona and serve the public must establish and implement policies based on guidance from the CDC, Department of Labor, Occupational Safety and Health Administration (“OSHA”) and ADHS to limit and mitigate the spread of COVID-19 including limiting the congregation of groups of no more than ten persons when feasible and in relation to the size of the location.

CALIFORNIA

California Regulatory Landscape 

In 1996, California was the first state to legalize medical marijuana through Proposition 215, the Compassionate Use Act of 1996 (“CUA”). This legalized the use, possession and cultivation of medical marijuana by patients with a physician recommendation for treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief.

In 2003, Senate Bill 420 was signed into law establishing an optional identification card system for medical marijuana patients.

In September 2015, the California legislature passed three bills collectively known as the “Medical Cannabis Regulation and Safety Act” (“MCRSA”). The MCRSA established a licensing and regulatory framework for medical marijuana businesses in California. The system created multiple license types for dispensaries, infused products manufacturers, cultivation facilities, testing laboratories, transportation companies and distributors. Edible infused product manufacturers would require either volatile solvent or non-volatile solvent manufacturing licenses depending on their specific extraction methodology. Multiple agencies would oversee different aspects of the program and businesses would require a state license and local approval to operate. However, in November 2016, voters in California overwhelmingly passed Proposition 64, the “Adult Use of Marijuana Act” (“AUMA”) creating an adult-use marijuana program for adult-use 21 years of age or older. AUMA had some conflicting provisions with MCRSA, so in June 2017, the California State Legislature passed Senate Bill No. 94, known as Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), which amalgamates MCRSA and AUMA to provide a set of regulations to govern medical and adult-use licensing regime for cannabis businesses in the state of California. MAUCRSA went into effect on January 1, 2018.The three agencies that regulate marijuana at the state level are the California Department of Consumer Affairs’ Bureau of Cannabis Control (“BCC”), California Department of Food and Agriculture (“CDFA”), California Department of Public Health (“CDPH”). The California Department of Tax and Fee Administration (“CDTFA”) oversees.

In order to legally operate a medical or adult-use cannabis business in California, the operator must have both a local and state license. This requires license holders to operate in cities with marijuana licensing programs. Therefore, cities in California are allowed to determine the number of licenses they will issue to marijuana operators or can choose to outright ban marijuana.

Licenses 

The Company is licensed to operate as a Medical and Adult-Use Retailer, Cultivator, Manufacturer and Distributor under applicable California and local jurisdictional law. The Company’s licenses permit it to possess, cultivate, manufacture, distribute, dispense and sell medical and adult-use cannabis in the state of California pursuant to the terms of the various licenses issued by the BCC, CDFA, and CDPH under the provision of the MAUCRSA and California Assembly Bill No. 133.

The licenses are independently issued for each approved activity for use at the Company’s facilities in California. California state and local licenses are generally renewed annually. License renewal applications are submitted per guidelines published by local cannabis regulators, BCC, CDFA and CDPH. While renewals are generally annual, there is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner, and there are no material violations noted against the applicable license, the Company would expect to receive the applicable renewed license in the ordinary course of business. 

Regulations 

In the state of California, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. The Company has the capabilities to cultivate, harvest, process, manufacture, distribute, and sell/dispense/deliver adult-use and medical cannabis and cannabis products. The state also allows the Company to make wholesale purchase of cannabis and cannabis products from, or a distribution of cannabis and cannabis product to, another licensed entity within the state.

Reporting Requirements 

The state of California has selected Franwell Inc.’s METRC solution (“METRC”) as the state’s track-and-trace (“T&T”) system used to track commercial cannabis activity and movement across the distribution chain (“seed-to- sale”). The METRC system is mandatory for all licensed operators in the state of California. The system allows for other third-party system integration via application programming interface (“API”).

COVID-19 Regulations 

On March 19, 2020, Governor Gavin Newsom issued a stay at home order to protect the health and well-being of all Californians and to establish a consistent approach across the state to slow the spread of COVID-19. This order went into effect on March 19, 2020, and is in place until further notice, with certain modification in May 2020.

The order identified certain services as essential, including food, prescriptions, and healthcare. These services can continue despite the stay at home order. Because cannabis is an essential medicine for many residents, licensees were permitted to operate so long as their operations comply with local rules and regulations.

In response to Governor Newsom’s emergency declaration regarding COVID-19, BCC licensees who are unable to comply with specific regulatory requirements were able to request relief from specific licensing requirements pursuant to section 5038 of the Bureau’s regulations. MedMen and numerous other retailers requested and were granted relief from certain regulation to perform curbside pickup for cannabis and cannabis product sales.

Certain jurisdictions where MedMen operates, or seeks to operate, implemented additional operational guidelines/limitations which MedMen continues to observe until further updates from local and state regulatory bodies.

FLORIDA

Florida Regulatory Landscape

In June 2014, the Florida Legislature and Governor enacted the Compassionate Medical Cannabis Act (SB1030) (the “CMCA”) to provide a comprehensive, safe and effective medical marijuana program to meet the needs of Florida residents. The Florida State Department of Health’s Office of Medical Marijuana Use (the “OMMU”) is the regulatory agency overseeing the medical marijuana program.

While Florida regulations discuss manufacturing of edible products, such products were not permitted until the Florida Department of Health created rules for edibles manufacturing. As of March 16, 2020, new regulations outlining a path to edibles manufacturing were published. License holders must meet many requirements to manufacture edibles including but not limited to: updating their business plan, obtain and maintain a food establishment permit, and obtain approval from the OMMU.

In addition, the OMMU is in the process of promulgating new lab testing rules which will enhance the current lab testing program and product safety requirements.

Licenses

Florida state licenses are issued unnumbered and are renewed biennially. Licensees are required to submit a renewal application and fees per guidelines published by OMMU. While renewals are biennial, there is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner, and regulatory requirements are met, the Company would expect to receive the applicable renewed license in the ordinary course of business.

Regulations

In the state of Florida, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. Florida is a “vertically-integrated” system, which gives a single license holder the ability to cultivate, harvest, process, manufacture, transport, sell and dispense cannabis and cannabis products. In Florida, l icense holders must participate in all aspects of the value chain in order to dispense can nabis and cannabis products to patients. Delivery to patients is permitted under the license with approval from the OMMU. The state of Florida recently updated lab testing related regulations putting more stringent controls on products in the supply chain, for the benefit of the medical marijuana patients. MedMen’s products were not impacted from the change due to stringent internal controls which exceeded previous regulatory requirements for product safety.

Reporting Requirements

The OMMU has not selected a state mandated seed-to-sale system at this time. The state however, tracks patient dispensing limits through a proprietary state system. Although there are no periodic reporting requirements to the State, full seed-to-sale tracking is required by all licensees and is periodically audited by the OMMU. Additionally, all sales transactions are manually entered into the state dispensing tracking system at the time of transaction.

COVID-19

Medical Marijuana Treatment Centers (“MMTC”) were not explicitly identified as essential businesses in the Governor’s April 1^st stay-at-home order. However, MMTCs were considered essential as part of Florida’s health-care sector. Licensed MMTCs have remained open during the stay-at-home order.

On March 16, 2020, the Florida Department of Health issued Emergency Order 20-002, which allowed the use of telemedicine by qualified physicians for recertification of already-existing medical marijuana patients. Under the order, qualified physicians under section 381.986, Florida Statutes, may issue a physician certification only for an existing qualified patient with an existing certification that was issued by that qualified physician without the need to conduct a physical examination while physically present in the same room as the patient.

ILLINOIS

Illinois Regulatory Landscape 

In 2013, the Illinois General Assembly passed the Compassionate Use of Medical Cannabis Pilot Program Act (410 ILCS 130), Public Act 98-0122 (the “Illinois Act”), which was signed into law by the Governor on August 1, 2013 and went into effect on January 1, 2014. The Illinois Act allows an individual who is diagnosed with a debilitating condition to register with the state to obtain cannabis for medical use. The program currently allows 60 Dispensing Organizations (each, a “DO”) and 22 cultivation centers statewide. A large variety of medical cannabis products are allowed in the state, including the smoking of cannabis flower. Overall, the program is administered by the Illinois Department of Public Health (the “IDPH”), the Illinois Department of Financial and Professional Regulations (the “IDFPR”) is the regulatory agency overseeing the medical marijuana program for DOs and the Illinois Department of Agriculture (the “IDOA”) is the regulatory agency overseeing the medical marijuana program for cultivation centers.

In June 2019, Illinois governor signed legislation legalizing marijuana for recreational use. The Cannabis Regulation and Tax Act, legalizing and regulating marijuana for recreational use, went into effect on June 25, 2019, however recreational sales of marijuana began in the state on January 1, 2020. The adult use program allowed existing medical marijuana license holders to apply for Early Approval Adult Use Dispensing Organization (“EAAUDO”) licenses to be able to sell adult use product at existing medical marijuana dispensaries (known as “co-located” or “same site” dispensaries) on January 1, 2020, and to have the privilege of opening a secondary adult use only retail site for every medical marijuana dispensary location the DO already had in its portfolio. All EAAUDO license holders were also required to commit to the state’s groundbreaking Social Equity program either through a financial contribution, grant agreement, donation, incubation program, or sponsorship program.

IDFPR will also be issuing an additional 75 Adult Use Dispensing Organization (“AUDO”) licenses in 2020. IDFPR is also expected to issue an additional 110 AUDO licenses by December 21, 2021. No single person or entity can have direct or indirect financial interest in more than 10 adult use dispensary licenses.

Licenses

Licensees are required to submit an annual renewal application and fees per guidelines published by the IDFPR and the Department of Agriculture respectively. While renewals are annual, there is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner, and regulatory requirements are met, the licensee would expect to receive the applicable renewed license in the ordinary course of business.

Under the adult use program, AUDO licenses are eligible for renewal every other year.

Regulations 

In the state of Illinois, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. DO license holders are provided the ability to dispense cannabis and cultivation centers are provided with the ability to cultivate, harvest, process, manufacture, and transport cannabis products. Delivery is not allowed from dispensaries to patients or consumers. Only designated caregivers may deliver medical cannabis to qualified patients.

Reporting Requirements 

The state of Illinois has selected BioTrackTHC’s solution as the state’s track and trace system used to track commercial cannabis activity and seed-to-sale Licensed entities are permitted to choose their own provider to track marijuana products from seed-to-sale, provided that it has the ability integrate with BioTrackTHC via an API. License holders are required to provide IDFPR an annual financial report.

COVID-19

The Governor of Illinois declared all counties in the State of Illinois as a disaster area on March 9, 2020 in response to the outbreak of Coronavirus Disease 2019 (COVID-19) under Executive Order 2020-10. Under the order, all cannabis operations, medical and adult-use, were deemed an essential business and permitted to remain operational with required modifications to general business operations to meet social distancing and other safety requirements.

On March 16, 2020, the IDFPR issued emergency regulations permitting the sale of medical cannabis and cannabis products outside of the dispensary as long as certain protective measures were in place. Adult-use cannabis sale process was unchanged. The permissible activity is currently extended through May 30, 2020.

MASSACHUSETTS

Massachusetts Regulatory Landscape

The use of cannabis for medical use was legalized in Massachusetts by a voter approval of the Massachusetts Marijuana Initiative in 2012. The law took effect on January 1, 2013, eliminating criminal and civil penalties for the possession and use of up to a 60-day or ten-ounce supply of marijuana for medical use for patients possessing a state issued registration card.

On November 8, 2016, Massachusetts voters approved Question 4 or the Massachusetts Marijuana Legalization Initiative, which allowed for recreational or “adult use” cannabis in the Commonwealth. On September 12, 2017, the Cannabis Control Commission (“CCC”) was established under Chapter 55 of the Acts of 2017 (the “Massachusetts Act”) to implement and administer laws enabling access to medical and adult-use cannabis.

On November 16, 2018, the CCC issued the first notices for retail marijuana establishments to commence adult-use operations in Massachusetts.

Under the current program there are no statewide limits on the total number of licenses permitted however, no individual or entity shall be a controlling person over more than three licenses in a particular class of license. Similarly, no individual, corporation or other entity shall be in a position to control the decision making of more than three licenses in a particular class of license. In addition, all Marijuana Establishments are required to enter into host community agreements with the municipality in which they are located.

Licenses

Provisional Marijuana Establishment licenses are renewed annually. There is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner, the applicable licensee provides an accounting of the financial benefits accruing to the municipality as the result of the host community agreement, and regulatory requirements are met, the licensee would expect to receive the applicable renewed license in the ordinary course of business.

Regulations

In the state of Massachusetts, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. A Marijuana Retailer may purchase and transport marijuana products from Marijuana Establishments and transport, sell or otherwise transfer marijuana products to Marijuana Establishments. Delivery currently permissible to medical patients only. Licensed cultivators and product manufacturers may cultivate, harvest, process, manufacture, package and sell marijuana products to Marijuana Establishments.

Reporting Requirements

The state of Massachusetts has selected METRC solution as the state’s T&T system used to track commercial cannabis activity and seed-to-sale. Licensed entities are permitted to choose their own provider to track marijuana products from seed-to-sale provided. The system allows for other third-party system integration via API.

NEVADA

Nevada Regulatory Landscape

Medical marijuana use was legalized in Nevada by a ballot initiative in 2000. In November 2016, voters in Nevada passed an adult-use marijuana measure to allow for the sale of recreational marijuana in the state. The first dispensaries to sell adult-use marijuana began sales in July 2017. The Nevada Department of Taxation (“DOT”) is the regulatory agency overseeing the medical and adult use cannabis programs. Similar to California, cities and counties in Nevada are allowed to determine the number of local marijuana licenses they will issue.

The Company only operates in Nevada cities or counties with clearly defined marijuana programs. Currently the Company is located in the City of Las Vegas, Clark County and Washoe County jurisdictions.

Licenses

Licenses are renewed annually and there is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner along with the necessary supporting documents, and regulatory requirements are met, the licensee would expect to receive the applicable renewed license in the ordinary course of business.

Regulations

In the state of Nevada, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. In Nevada, the Company has the capabilities to cultivate, harvest, process, manufacture, and sell/dispense/deliver adult-use and medical cannabis and cannabis products. The state also allows the Company to make wholesale purchase of cannabis and cannabis products from another licensed entity within the state.

Reporting Requirements

The state of Nevada uses METRC as the state’s computerized T&T system used to track commercial cannabis activity and seed-to-sale. Individual licensees whether directly or through third-party integration systems are required to provide data to the state to meet certain reporting requirements. The system allows for other third-party system integration via application programming interface (“API”).

COVID-19 Regulations

On March 12, 2020, Governor Sisolak declared a state of emergency in Nevada. Retail cannabis stores and medical cannabis businesses were deemed essential and allowed to operate. Through additional emergency regulation issued on March 20, cannabis businesses could operate by delivery only and all in-store sales were prohibited. The Governor’s office released Directive 16 on April 29, allowing cannabis dispensaries to conduct curbside transactions beginning May 1, with pre-approval from the Department of Taxation after submission of a written plan. Further, on May 7, the Governor issued an updated emergency directive stating that the Department of Taxation in conjunction with the Cannabis Compliance Board will allow medical dispensaries and retail marijuana stores to re-open with limited in- store access beginning Saturday, May 9, with pre-approval after submission of a written plan.

NEW YORK

New York Regulatory Landscape

In July 2014, the New York Legislature and Governor enacted the Compassionate Care Act (A06357E, S07923) (the “CCA”) to provide a comprehensive, safe and effective medical marijuana program to meet the needs of New Yorkers. The program currently allows 10 Registered Organizations (each, an “RO”) to hold “vertically-integrated” licenses, which gives a license holder the ability to cultivate, harvest, process, manufacture, transport, sell and dispense cannabis and cannabis products. Limited product types are allowed in the state. The New York State Department of Health (the “NYSDOH”) is the regulatory agency overseeing the medical marijuana program.

Licenses

State licenses in New York are renewed biennially. Before the two-year period ends, licensees are required to submit a renewal application per guidelines published by the NYSDOH. While renewals are granted every two years, there is no ultimate expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal fees are paid, the renewal application is submitted in a timely manner, and there are no material violations noted against the applicable license, the licensee would expect to receive the applicable renewed license in the ordinary course of business.

Regulations

In the state of New York, only cannabis that is grown and manufactured in the state by a licensed establishment may be sold in the state. In New York, ROs are permitted to wholesale manufactured product and extracted cannabis. Delivery is allowed from dispensaries to patients with prior approval.

Reporting Requirements 

The state of New York has selected BioTrackTHC’s solution as the state’s T&T system used to track commercial cannabis activity and seed-to-sale. The BioTrackTHC system is required to serve as all ROs’ patient verification system, but is optional as the RO facing tracking system. In addition to entering all dispensing transactions into the BioTrackTHC system, every month the NYSDOH requests a dispensing report in Excel format, via email, showing all products dispensed for the month.

COVID-19

On March 17, the Department of Health released guidance to all ROs noting that Registered Organizations are considered essential businesses because they are considered medical providers.

Additionally, ROs were permitted to dispense medical marijuana products at the door of the dispensing facility to limit potential exposure to RO staff and other patients. ROs were permitted to dispense from the doors of the dispensing facilities provided that you maintain compliance with all current laws, rules and regulations including but not limited to dispensing on camera, checking the PMP as required and validating registry ID cards.

Regulatory Affairs Program

The Company’s Senior Vice President of Legal Affairs oversees, maintains, and implements the compliance program and personnel. In addition to the Company’s robust legal and regulatory affairs departments, the Company also has local regulatory/compliance counsel engaged in the jurisdictions (state and local) in which it operates. Such counsel provides legal advice to the Company regarding compliance with state and local laws and regulations and the Company’s legal and compliance exposures under United States federal law. The Senior Vice President of Legal Affairs and Compliance Affairs Managers serve as liaisons to state and local regulators during both regular business hours and after hours. The Compliance Department, in partnership with the Retail, Human Resources, Legal, and Supply Chain Departments, is responsible for ensuring operations and employees strictly comply with applicable laws, regulations and licensing conditions and ensure that operations do not endanger the health, safety or welfare of the community. The Senior Vice President of Legal Affairs coordinates with the Security Department to ensure that the operation and all employees are following and complying with the Company’s written security procedures.

The Compliance Department oversees training for all employees, including on the following topics:

The Company’s compliance program emphasizes security and inventory control to ensure strict monitoring of cannabis and inventory from delivery by a licensed distributor to sale or disposal. Only authorized, properly trained employees are allowed to access the Company’s computerized seed-to-sale system.

The Company has created comprehensive standard operating procedures, operating plans, trackers and checklists that include detailed descriptions and instructions for receiving shipments of inventory, inventory tracking, recordkeeping and record retention practices related to inventory, as well as procedures for performing inventory reconciliation and ensuring the accuracy of inventory tracking and recordkeeping. The Company maintains accurate records of its inventory at all licensed facilities. Adherence to the Company’s standard operating procedures is mandatory and ensures that the Company’s operations are compliant with the rules set forth by the applicable state and local laws, regulations, ordinances, licenses and other requirements.

In addition to the above disclosure, please see the “Risk and Uncertainties” section herein and “Risk Factors” in the Company’s Annual Information Form for further risk factors associated with the operations of the Company.

SERVICE PROVIDERS

As a result of any adverse change to the approach in enforcement of United States cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third party service providers to the Company could suspend or withdraw their services, which may have a material adverse effect on the Company’s business, revenues, operating results, financial condition or prospects.

In addition to the above disclosure, please see “Risk Factors - Risks Associated with the Business of the Company - Service Providers” in the Company’s Annual Information Form.

ABILITY TO ACCESS PUBLIC AND PRIVATE CAPITAL

The Company has historically had access to equity and debt financing from the public and private markets in Canada and private markets in the United States and internationally. While the company is not able to obtain bank financing in the U.S. or financing from other U.S. federally regulated entities, subject to market conditions, it has the ability to access to such equity and debt financing in Canada, the United States and internationally, both on a brokered and non- brokered basis. The Company’s executive team and the MedMen board have extensive relationships with sources of private capital (such as funds, high net worth individuals and family offices), which has facilitated its ability to complete non-brokered financing transactions.

If such equity and/or debt financing was no longer available in the public markets in Canada due to changes in applicable law or on terms which are acceptable, then the Company would endeavor to raise equity and/or debt financing privately. Commercial banks have approached the cannabis industry cautiously to date. However, there are increasing numbers of high net worth individuals, family offices, private equity and venture capital firms and other funds that have made meaningful investments in cannabis companies, including those with U.S. operations. Although there has been an increase in the amount of private financing available to cannabis companies over the last several years, there can be no assurance that additional financing will be available to the Company when needed or on terms which are acceptable.

The Company’s inability to raise financing to fund operating or capital expenditures or acquisitions could limit its ability to operate or its growth and may have a material adverse effect upon the Company’s business, financial condition, cash flows, results of operations or prospects.

RECENT DEVELOPMENTS

TURNAROUND PLAN

Beginning in its fiscal third quarter 2019, the Company executed on a number of initiatives to restructure the business and reduce its operating expenses and cash burn:

Focus on Core Markets:

On October 8, 2019, the Company announced the mutual termination of its business combination agreement with PharmaCann, LLC (“PharmaCann”) pursuant to which the Company would acquire Phar amaCann in an all-stock transaction and PharmaCann securityholders would , as a result , hold approximately 25% of the fully-diluted equity of the Company. The termination was in light of the general decline of the U.S. and Canadian capital markets in the cannabis industry since the initial announcement of execution of the definitive documents on December 24, 2018 .   For example, f rom March 2019 to September 2019, the Horizons Marijuana Life Sciences Index (HMMJ) had declined 4 7 % . Furthermore , t he Company had also changed its business strategy to focus on the Company’s retail brand in its core markets, including California, Nevada, Florida, Illinois, New York and Massachusetts.

As compensation for the termination of the transaction , PharmaCann   transferred certain  assets to the Company and the Company forgave all outstanding amounts under its existing line of credit to PharmaCann, which totaled approximately $21 .0 . million . The assets transferred were 100% of the membership interests in three entities holding the following assets:

On November 15, 2019, the Company announced its intention to sell non-core assets to raise non-dilutive financing. These non-core assets included its three cannabis licenses in Arizona. The Company determined that the sale of non-core assets would allow for management to further focus on deepening its market share in its core markets.

Reduction in SG&A:

On November 15, 2019, the Company announced plans to reduce corporate SG&A through a reduction in headcount, scaling back of marketing and technology spend and the renegotiation of ancillary costs to the business.

On May 27, 2020, the Company announced its fiscal third quarter 2020 financial results and reported corporate SG&A of $69 million on an annualized basis, representing 35% decrease from the previous quarter and 51% decrease from the prior year period. Through the end of fiscal third quarter 2020, the Company had reduced overall corporate SG&A by over $100 million on annualized basis since its cost-cutting efforts began in fiscal second year 2019.

Executive Management:

On January 31, 2020, the Company announced that co-founder Adam Bierman resigned as Chief Executive Officer of the Company. Effective February 1, 2020, Ryan Lissack, the Company’s Chief Technology Officer, began serving as the Company’s Interim Chief Executive Officer. In addition, it was announced that co-founder Andrew Modlin no longer held the position as President of the Company or a member of its Board of Directors. Effective January 30, 2020, Mr. Modlin’s title became Chief Brand Officer of the Company. Mr. Modlin’s employment contract with the Company expired in May 2020 and he is no longer with the Company.

Effective February 1, 2020, Mr. Bierman and Mr. Modlin agreed to surrender all of their respective Super Voting Shares to the Company. Mr. Bierman ’s Super Voting Shares have been cancelled . In connection with his departure and surrender of his Super Voting Shares, the Company will compensate Mr. Bierman in the form of securities of which the number of issued securities and the aggregate amount is yet to be determined. As a result of the cancellation, Mr. Bierman does not hold any Super Voting Shares nor any securities convertible or exchangeable into Super Voting Shares . Mr. Modlin’s Super Voting Shares will automatically be cancelled upon the expiration of the proxy granted in December 2019 by Mr. Modlin to Ben Rose, Executive Chairman of the Board, which expiration is contemplated to occur in December 2020. U pon the expiration of the proxy in December 2020, Mr. Modlin will not hold any Super Voting Shares nor any securities convertible or exchangeable into Super Voting Shares. As a result, the Company will only have one class of outstanding shares, the Class B Subordinate Voting Shares, by the end of calendar year 2020.

On March 30, 2020, the Company announced it had retained interim management and advisory firm, SierraConstellation partners (“SCP”), to support the company in the development and execution of its turnaround and restructuring plan. As part of the engagement, Tom Lynch was appointed as Interim Chief Executive officer and Chief Restructuring Officer, succeeding Ryan Lissack. Mr. Lynch is a Partner and Senior Managing Director at SCP and previously served as Chairman and Chief Executive Officer of Frederick’s of Hollywood Group, a publicly traded specialty retailer, and more recently Interim Chief Executive Officer of David’s Bridal. Tim Bossidy, Director at SCP, was appointed as Interim Chief Operating Officer. Mr. Bossidy has previously served in interim management and financial advisory roles across the cannabis and consumer/retail sectors.

Lender and Landlord Support Agreement:

On July 3, 2020, the Company announced the execution of definitive agreements (collectively referred to as the “Lender and Landlord Support Agreement”) with certain lenders, including Gotham Green Partners, Stable Road Capital and affiliates, and the landlord for several of its retail, cultivation and manufacturing facilities, Treehouse Real Estate Investment Trust. In the announcement, the Company noted that the Lender and Landlord Support Agreement would defer approximately $32 million of cash commitments over the next twelve months through a combination of cash interest and rent deferrals.

COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. While the ultimate severity of the outbreak and its impact on the economic environment is uncertain, the Company is monitoring this closely. The Company operates 25 store location across California (11), Florida (4), Nevada (3), Illinois (2), New York (4) and Arizona (1) and five cultivation and production facilities across Nevada, California, New York, Florida and Arizona. Our business depends on the uninterrupted operation of these stores and facilities. The Company’s priority during the COVID-19 pandemic is protecting the safety of its employees and customers and it is following the recommended guidelines of applicable government and health authorities. Despite being deemed as an essential retailer in its core markets, the Company has experienced a negative impact on sales in certain markets as a result of shelter-at-home orders, social distancing efforts, restrictions on the maximum allowable number of people within a retail establishment and declining tourism. Although the Company only permanently closed one store as a result of COVID-19, certain markets, such as California and Nevada, experienced a greater impact on sales due to reduced store hours and foot traffic in certain locations, as well as limits on the number of customers that may be in a store at any one time. Other markets, such as Illinois, Florida and New York have not been significantly impacted by COVID-19 and in some cases, stores in those markets have generated increased sales. Due to its strong vendor partnerships in each market, the Company has not experienced a significant impact to its supply chain in each market. In the event that the Company were to experience widespread transmission of the virus at one or more of the Company’s stores or other facilities, the Company could suffer reputational harm or other potential liability. Further, the Company’s business operations may be materially and adversely affected if a significant number of the Company’s employees are impacted by the virus .

On March 30, 2020, the Company announced the withdrawal of its fiscal year 2020 and 2021 revenue and store count guidance provided on December 11, 2019 due to uncertainty surrounding the magnitude of the pandemic and its impact on retail operations (both existing and planned) in its core markets. While the Company continues to execute on its efforts to improve store profitability, reduce selling, general and administrative expense and delay capital-intensive projects, the Company is reassessing the timing of these cash flow milestones due to the potential impact of COVID-19 on its turnaround plan.

To date, the Company has generally implemented certain safety measures to ensure the safety of its customers and associates, which may have the effect of discouraging shopping or limiting the occupancy of our stores.Store operations in California and Nevada have been modified., with an increased focus on direct-to-consumer delivery and enabling a curbside pickup option for its customers. The Company leveraged its technology team to build the enhanced omni-channel functionality in, and expects to continue offering, a variety of purchasing options for its customers. These measures, and any additional measures that have been and may continue to be taken in response to the COVID-19 pandemic, have substantially decreased and may continue to decrease, the number of customers that visit our stores which has had, and will likely continue to have a material adverse effect on our business, financial condition and results of operations.The ultimate magnitude of COVID-19, including the extent of its overall impact on our financial and operational results cannot be reasonably estimated at this time; however, the Company has experienced significant declines in sales . The overall impact will depend on the length of time that the pandemic continues, the extent to which it affects our ability to raise capital, and the effect of governmental regulations imposed in response to the pandemic, as well as uncertainty regarding all of the foregoing. At this time, it is unclear how long these measures may remain in place, what additional measures may be imposed, or when our operations will be restored to the levels that existed prior to the COVID-19 pandemic.

In addition, our business depends on consumer discretionary spending, and as such, our results are particularly sensitive to economic conditions and consumer confidence. COVID-19 has significantly impacted economic conditions, resulting in, among other things, unprecedented increases in the number of people seeking jobless benefits and a significant decline in global financial markets. As a result, even when all of our store locations are fully operational, there can be no guarantee that our revenue will return to its pre-COVID-19 levels.

Strategic Partnership with Gotham Green Partners

On April 23, 2019, the Company secured a senior secured convertible credit facility (the “GGP Facility”) to provide up to $250.0 million in gross proceeds, arranged by Gotham Green Partners (“GGP”). The GGP Facility had been accessed through issuances to the lenders of convertible senior secured notes (“GGP Notes”) co-issued by the Company and MM CAN. Refer to “Note 17 - Senior Secured Convertible Credit Facility” of the unaudited interim condensed consolidated financial statements for the 13 and 39 weeks ended March 28, 2020.

On August 12, 2019, the Company and the lenders executed amendments to the GGP Facility and, as a result, the Company committed to pay an amendment fee of $18.8 million, which was subsequently converted into additional GGP Notes (the “Amendment Fee Notes”).

On October 29, 2019, the Company further amended the GGP Facility (the “Second Amendment”) wherein certain reporting and financial covenants were modified. The amount of available credit in the remaining tranches was amended to $10.0 million for Tranche 3 and $115.0 million for Tranche 4. The aggregate amount available to be borrowed with the consent of the lenders remained the same. Further, the Second Amendment provided that the funding of Tranche 4 would require the consent of both the Company and the lenders under the GGP Facility. On October 29, 2019, the Company issued the Amendment Fee Notes in the principal amount of $18.8 million with a conversion price of $1.28 per Class B Subordinate Voting Share. On November 27, 2019, the Company issued an additional $10.0 million of GGP Notes under Tranche 3. Among other changes, the Second Amendment provided greater flexibility to the Company by:

On March 30, 2020, the Company announced that it received $12.5 million of additional proceeds under the GGP Facility as an advance under Tranche 4 in relation to which it co-issued with MM CAN GGP Notes with a conversion price of $0.26 per Class B Subordinate Voting Share. In connection with the also issued 48,076,923 warrants, each of which is exercisable to purchase one Subordinate Voting Share for a period of five years at an exercise price equal to $0.26.

In addition, the Company amended and restated the securities purchase agreement with the lenders that governs the GGP Facility. The amendments provided the Company with greater access to capital and additional operating flexibility. Subject to the funding requirements of the Company and certain other conditions, GGP committed to use commercially reasonable efforts to fund up to $150.0 million under the GGP Facility through Tranche 4 and subsequent tranches, to be funded over time (each such subsequent tranche, an “Incremental Advance”), for a total of up to $285.0 million in gross proceeds under the GGP Facility. The final $25.0 million of this amount was subject to acceptance by the Company. Under the agreement, GGP had a period of 90 days in which to provide the Company with funding commitments for the Incremental Advances (each, a “Funding Commitment”), which period was be extended to a total of 180 days if the Funding Commitments reached at least $50.0 million (inclusive of the Tranche 4 Notes) during the initial 90-day period.

The Company issued GGP Notes to the lenders participating in an Incremental Advance (“Incremental Notes”) with a conversion price per Subordinate Voting Share equal to the five (5) day volume weighted average trading price (“VWAP”) of the Subordinate Voting Shares as of the trading day immediately preceding the date of completion of such Incremental Advance, subject to a minimum price of $0.20 and maximum price of $0.40 (in respect of each Incremental Advance, a “Restatement Conversion Price”), provided that the first Incremental Advance will have a Restatement Conversion Price of $0.26. The Company also issued to the lenders participating in an Incremental Advance share purchase warrants of the Company (“Incremental Warrants”), representing 100% coverage on the aggregate principal amount of such Incremental Advance, each of which are exercisable to purchase one Subordinate Voting Share for a period of five (5) years from the date of issuance, at an exercise price per Subordinate Voting Share equal to the Restatement Conversion Price for such Incremental Advance. The Tranche 4 Warrants and any Incremental Warrants that are issued are exercisable on a cashless (net exercise) basis.

All GGP Notes continued to bear interest from their date of issuance at the higher of (i) 2.5%, and (ii) LIBOR, plus 6.0% per annum. All GGP Notes also continued to be subject to the existing maturity date of April 23, 2022 (the “Maturity Date”), with a twelve-month extension feature available to the Company on certain conditions, including payment of an extension fee of 1.0% of the aggregate principal amount outstanding under the GGP Notes, provided that if the Tranche 4 Notes and Funding Commitments reached at least $100.0 million in the aggregate, the lenders would have certain options to extended the Maturity Date of the outstanding Notes to up to April 23, 2027 at the latest. As a related matter, the Company’s prepayment right would not be exercisable as to any of the GGP Notes for eighteen months from the date of completion of Tranche 4 and if the Tranche 4 Notes and Funding Commitments reached at least $100.0 million in the aggregate, the lenders would have the option to eliminate the Company’s prepayment right. In the event that the Company was able to and exercised its prepayment right to prepay, in whole or in part, any of the principal amount outstanding under the GGP Notes prior to their maturity, a fee of 3% on the amount being prepaid would be payable by the Company to the applicable lenders.

Certain of the financial covenants under the GGP Facility were also modified to provide the Company with additional balance sheet flexibility. The modifications included a reduction in the required go-forward minimum cash balance and the removal of the fixed charge coverage ratio requirement that was to become effective in calendar 2021.

As additional consideration for the purchase of the Tranche 4 Notes, the lenders participating in Tranche 4 were paid an advance fee of 1.5% of the aggregate principal amount of the Tranche 4 Notes, which fee will also be paid in respect of any Incremental Advances. In connection with the amendments made to the GGP Facility, a fee of approximately $8.2 million (the “Restatement Fee Amount”) was paid through the issuance of additional GGP Notes to the applicable lenders in an aggregate principal amount equal to the Restatement Fee Amount, which GGP Notes have a conversion price per Subordinate Voting Share equal to $0.26 (the “Restatement Fee Notes”). Up to the same aggregate principal amount of additional GGP Notes would be issuable as a fee if the Incremental Advances total at least $87.5 million, whereby if less than $87.5 million in Incremental Advances is raised, the aggregate principal amount of such additional fee GGP Notes would be proportionately lower. 

As additional consideration for the amendment of the GGP Facility, the conversion price for 12.5% of the existing GGP Notes outstanding prior to Tranche 4 (including paid-in-kind (“PIK”) interest accrued on such GGP Notes) (collectively, the “Existing Notes”), being 12.5% of an aggregate principal amount of $164.0 million, was amended to $0.26 per Subordinate Voting Share. In addition, 2,700,634 of the 21,605,067 existing share purchase warrants of the Company issued under the GGP Facility and outstanding prior to Tranche 4 (collectively, the “Existing Warrants”) were cancelled and replaced by 32,451,923 share purchase warrants of the Company (the “Tranche 4 Replacement Warrants”), each of which is exercisable to purchase one Subordinate Voting Share for a period of five (5) years from the date of issuance at an exercise price equal to $0.26 per share.

As any Incremental Advances are funded, the conversion price of additional Existing Notes would be amended and additional Existing Warrants would be cancelled and replaced by new share purchase warrants of the Company (the “Incremental Replacement Warrants” and, collectively with the Tranche 4 Replacement Warrants, the “Replacement Warrants”), each of which will be exercisable to purchase one Subordinate Voting Share for a period of five (5) years from the date of issuance. The principal amount of the Existing Notes that are repriced and the number of Existing Warrants that are cancelled and replaced upon an Incremental Advance would be based on the percentage that the amount of such Incremental Advance is of a total funding target of $100.0 million (the “Funding Target Percentage”). The applicable Existing Notes would be repriced to the Restatement Conversion Price for such Incremental Advance. The Incremental Replacement Warrants issued as a part of such Incremental Advance would represent 50% coverage on the amount determined by multiplying the Funding Target Percentage by $135.0 million (the “Existing Funded Amount”), and would have an exercise price per Subordinate Voting Share equal to the Restatement Conversion Price for such Incremental Advance. The Replacement Warrants are exercisable on a cashless (net exercise) basis.

Notwithstanding the foregoing, no Replacement Warrants are able to be exercised by the applicable lenders prior to the eighteen (18) month anniversary of their issuance. In addition, if the Company’s retail operations achieve two consecutive three-month periods of positive after-tax free cash flow during any time prior to the expiry date for the Replacement Warrants, then all outstanding Replacement Warrants are automatically cancelled upon achieving the milestone.

In addition, if the Tranche 4 Notes and Funding Commitments reached at least $100.0 million in the aggregate, subject to certain limited exceptions, the lenders would be entitled to a preemptive right to participate in future securities issuances by the Company in the event that such an issuance would cause the fully-diluted ownership percentage of the lenders in the Company (such percentage, calculated using a formula provided in the GGP Facility purchase agreement) to fall below 51%. Additionally, subject to certain limited exceptions, in the event that the Company completes a security issuance, the price of which is less than the higher of (i) $0.26, and (ii) the highest Restatement Conversion Price determined for any Incremental Advances completed up to the time of such new security issuance, the lenders are entitled to a repricing of the conversion price and exercise price, as applicable, of the outstanding Tranche 4 Notes (including the Restatement Fee portion thereof), Incremental Notes (including the Restatement Fee portion thereof), portion of the Existing Notes that have previously been repriced as a result of the completion of an Incremental Advance, Tranche 4 Warrants and Incremental Warrants, to the same pricing as such new security issuance completed by the Company.

As part of the amendments to the GGP Facility, the Company agreed that the committee previously formed to select independent directors to be appointed or elected to the Board, are responsible for selecting five (5) (increased from four (4)) of the seven (7) members of the Board. At the time, four (4) of the seven (7) members of the Board had been approved by the committee. In accordance with the existing process, in the future, the Company will propose director candidates to this committee for consideration and approval.

On April 24, 2020, the Company received $2.5 million in additional proceeds as a portion of the first Incremental Advance, in relation to which it co-issued with MM CAN additional GGP Notes with a conversion price of $0.26 per Class B Subordinate Voting Share. In connection with completing the initial portion of the first Incremental Advance, the Company issued 9,615,385 warrants with an exercise price of $0.26. In addition, the Company cancelled 540,128 of the Existing Warrants and issued 6,490,385 Replacement Warrants with an exercise price per share equal to $0.26.

On July 3, 2020, as part of the Lender and Landlord Support Agreement the Company and GGP further amended and restated the securities purchase agreement that governs the Convertible Facility. All notes under the Convertible Facility continue to bear interest at the higher of (i) 2.5%, and (ii) LIBOR, plus 6.0% per annum. However, the payment-in-kind (“PIK”) feature on the Convertible Facility was extended, such that 100% of the cash interest due prior to June 2021 will be paid-in-kind, and 50% of the cash interest due thereafter for the remainder of the term of the Convertible Facility will be paid-in-kind. The PIK feature will expire if Section 280E tax reform occurs and the Company begins to be taxed similar to other U.S. corporations.

The threshold for the minimum liquidity covenant, which was previously US$15.0 million, was waived until September 30, 2020, resetting to US$5.0 million thereafter, to US$7.5 million effective on March 31, 2021 and then to US$15.0 million effective on December 31, 2021.

GGP agreed to the release of certain assets from its collateral pool in order to provide the Company with greater flexibility to generate proceeds through the sale of non-core assets.

As consideration for the amendment of the Convertible Facility, the conversion price for 52% of the existing notes outstanding under the Convertible Facility prior to the US$15.0 million advance under Tranche 4 of the Convertible Facility (including PIK interest accrued on such notes), being 52% of an aggregate principal balance of US$167.7 million as of June 30, 2020, was amended to US$0.34 per Class B Subordinate Voting Share of the Company (each, a “Subordinate Voting Share”). As additional consideration, a fee of US$2.0 million was paid to the lenders under the Convertible Facility through the issuance of additional notes, which notes have a conversion price per Subordinate Voting Share equal to US$0.28, which represents a 30% premium to the 5-day volume-weighted average trading price of the Subordinate Voting Shares as of and including June 30, 2020.

In connection with the amendments to the Convertible Facility, the Company is subject to certain additional covenants thereunder, which are consistent with the Company’s internal business plan (“Turnaround Plan”). The Company is required to adhere to its Turnaround Plan for certain cash expenditures such as corporate expenses, capital expenditures and leases. The covenants expire once the Company achieves two consecutive fiscal quarters of being free cash flow positive.

On September 14, 2020, the Company was advanced an additional $5,000,000 in gross proceeds (the “Incremental Advance”) under the GGP Facility. In connection therewith, the Company co-issued, with its subsidiary MM CAN USA, Inc., additional senior secured convertible notes (the “Notes”) to the lenders under the GGP Facility in an aggregate principal amount equal to such Incremental Advance with a conversion price per share equal to $0.20. As consideration for the purchase of the additional Notes, participating lenders received a $468,564 fee with a conversion price of US$0.20 per Share (the “Restatement Fee Notes”), consistent with the terms of the GGP Facility.  

Pursuant to the terms of the GGP Facility, the conversion price for 5.0% of the existing Notes outstanding prior to Tranche 4 and Incremental Advance (including paid-in-kind interest accrued on such Notes), being 5.0% of an aggregate principal amount of US$170,729,923, was amended to US$0.20 per share. The Company issued to the lenders 25,000,000 share purchase warrants of the Company (the “Incremental Advance Warrants”), each of which is exercisable to purchase one share for a period of five (5) years from the date of issuance at an exercise price equal to $0.20 per Share, and cancelled 1,080,255 share purchase warrants of the Company (the “Existing Warrants”) held by holders of the existing Notes and, in exchange, issued 16,875,000 share purchase warrants of the Company (the “Replacement Warrants”) at an exercise price equal to $0.20 per Share. The Notes issued in connection with the Incremental Advance, the Restatement Fee Notes, the Incremental Advance Warrants, the Replacement Warrants and any shares issuable as a result of conversion or exercise of the same, will be subject to a hold period from the date of issuance of such Notes or such Warrants, as applicable.

The GGP Facility was amended to include, among other things, a modification to the minimum liquidity covenant, which extends the period during which it is waived from September 30, 2020 to December 31, 2020. The minimum liquidity threshold resets to US$5.0 million thereafter to US$7.5 million effective on March 31, 2021 and then to US$15.0 million effective on December 31, 2021.

Secured Term Loan Amendment

On December 10, 2019, the Company executed a binding term sheet in respect of certain amendments to the definitive agreement for the $77.8 million senior secured term loan (the “October 2018 Loan”) with funds managed by Stable Road Capital and its affiliates (the “Term Loan Lenders”). The Company subsequently announced the execution and closing of definitive documentation on January 14, 2020. Amendments included:

On January 14, 2020, the Company announced the closing of definitive documentation for amendments to the terms and conditions of the US$77.7 million senior secured term loan (“October 2018 Loan”) with funds managed by Stable Road Capital and its affiliates (“Term Loan Lenders”).

On July 3, 2020, as part of the Lender and Landlord Support Agreement, the Company and the Term Loan Lenders further amended the commercial loan agreement that governs the October 2018 Loan. In the amendment to the October 2018 Loan completed in January 2020, the interest rate was increased from a fixed rate of 7.5% per annum, payable monthly in cash, to a fixed rate of 15.5% per annum, of which 12.0% was to be payable monthly in cash based on the outstanding principal and 3.5% was to accrue monthly to the principal amount of the debt as PIK. In connection with the Plan announced today, 100% of the total interest payable prior to June 2021 will be paid-in-kind and 50% of the cash interest due thereafter for the remainder of the term of the October 2018 Loan will be paid-in-kind. The PIK feature will expire if Section 280E tax reform occurs and the Company begins to be taxed similar to other U.S. corporations.

The threshold for the minimum liquidity covenant, which was previously US$15.0 million, was waived until September 30, 2020, resetting to US$5.0 million thereafter, to US$7.5 million effective on March 31, 2021 and then to US$15.0 million effective on December 31, 2021.

As consideration for the amendment of the October 2018 Loan, the Company issued to the Term Loan Lenders a total of 20.2 million warrants, each exercisable at US$0.34 per share for a period of five years. As additional consideration, a fee of US$834,000 was paid-in-kind. The Company also canceled 20.2 million warrants of the total 40.4 million warrants already held by the Term Loan Lenders, which were each exercisable at US$0.60 per share.

In connection with the amendments to the October 2018 Loan, the Company is now subject to certain additional covenants thereunder, which are consistent with those included as a part of the amendments to the Convertible Facility. 

On September 16, 2020, the Company entered into a further amendment to the October 2018 Loan. The amendments include, among other things, an increase in the potential size of the facility by US$12,000,000, of which US$5,700,000 (“Incremental Notes”) is fully committed by the Term Loan Lenders. On September 16, 2020, the Company closed on US$3,000,000, with the remaining US$2,700,000 funded on September 30, 2020.

The principal amount of the Incremental Notes carry an interest rate of 18.0% per annum, to be paid as follows: (a) 12.0% shall be paid in cash monthly in arrears; and (b) 6.0% shall accrue monthly to the outstanding principal as payment-in-kind. The October 2018 Loan was also amended to include, among other things, a modification to the minimum liquidity covenant, which extends the period during which it is waived from September 30, 2020 to December 31, 2020. The minimum liquidity threshold resets to US$5.0 million thereafter to US$7.5 million effective on March 31, 2021 and then to US$15.0 million effective on December 31, 2021.

As consideration for the increase in the size of the facility under the October 2018 Loan and the amendment to the covenant, the Company is issuing warrants as follows: on the closing of the initial US$3,000,000, the Company issued to the Term Loan Lenders a total of 30,000,000 warrants, each exercisable at US$0.20 per share for a period of five years and 20,227,865 warrants, each exercisable at US$0.34 per share for a period of five years; on closing of the remaining US$2,700,000 tranche, the Company issued to the Term Loan Lenders an additional 27,000,000 warrants, each exercisable at the greater of (a) US$0.20 per Share and (b) 115% multiplied by the volume-weighted average trading price of the Shares for the five consecutive trading days ending on the trading day immediately prior to the applicable funding date of the second tranche.

September 2020 Unsecured Convertible Facility

On September 16, 2020, the Company entered into a US$10,000,000 unsecured convertible debenture facility (“Convertible Facility”) with certain institutional investors (collectively, the “Investors”) and closed on an initial US$1,000,000 (“Initial Tranche”), with subsequent tranches expected to be closed in the coming months, subject to certain conditions. Under the Convertible Facility, the convertible debentures (“Debentures”) will have a conversion price equal to the closing price on the trading day immediately prior to the closing date, a maturity date of 24 months from the date of issuance and will bear interest from the date of issuance at 7.5% per annum, payable semi-annually in cash. The Debentures issued to the Investors for the initial tranche have a conversion price of US$0.1670 (“Conversion Price”) per Class B Subordinate Voting Share.

Subject to certain conditions, the Company has the right to call additional tranches, totaling US$1,000,000 each, no later than 20 trading days following the issuance of each tranche, including the initial tranche, up to a maximum of US$10,000,000 under all tranches. The timing of additional tranches can be accelerated based on certain conditions. The Investors have the right to at least four additional tranches, with any such subsequent tranche to be at least US$1,000,000.

At the closing of each additional tranche, the Company will issue share purchase warrants equal to 55% of the number of Shares a debenture is convertible into for a particular tranche. Each warrant will be exercisable to purchase one Share for a period of 24 months from the date of issuance at an exercise price equal to 120% of the volume weighted average price of the Shares on the CSE for ending on the trading day immediately prior to the applicable closing of each tranche. As part of the Initial Tranche, the Company issued to  the Investors a total of 3,293,413 warrants, each exercisable at US$0.21 per share for a period of 24 months from the date of issuance.

The Debentures provide for the automatic conversion into Shares in the event that the Shares trade at a volume weighted average trading price that is 50% above the Conversion Price on the CSE for forty-five (45) consecutive trading days.

TREEHOUSE REAL ESTATE INVESTMENT TRUST

The Company has lease arrangements with affiliates of Treehouse Real Estate Investment Trust (“Treehouse”), which include 14 retail and cultivation properties across the U.S. As part of the Lender and Landlord Support Agreement, Treehouse agreed to defer a portion of total current monthly base rent for the 36-month period between July 1, 2020 and July 1, 2023. The total amount of all deferred rent accrues interest at 8.6% per annum during the deferral period. As consideration for the rent deferral, the Company issued to Treehouse 3,500,000 warrants, each exercisable at US$0.34 per share for a period of five years. As part of the agreement, the Company is pursuing a partnership with a cannabis cultivation company for the Company’s Desert Hot Springs and Mustang facilities that are leased from Treehouse in order to continue the Company’s focus on retail operations.

Item 1A. Risk Factors.

RISK FACTORS

The following are certain factors relating to the business and securities of MedMen. These risks and uncertainties are not the only ones facing MedMen. Additional risks and uncertainties not presently known to MedMen or currently deemed immaterial by MedMen, may also impair the operations of or materially adversely affect the securities of MedMen. If any such risks actually occur, MedMen Shareholders could lose all or part of their investment and the business, financial condition, liquidity, results of operations, cash flows and prospects of MedMen could be materially adversely affected and the ability of MedMen to implement its growth plans could be adversely affected. Some of the risk factors described herein are interrelated and, consequently, readers should treat such risk factors as a whole.

The acquisition of any of the securities of MedMen is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of MedMen should not constitute a major portion of a person’s investment portfolio and should only be made by persons who can afford a total loss of their investment. MedMen securityholders should evaluate carefully the following risk factors associated with MedMen’s business and securities, along with the risk factors described elsewhere herein.

RISKS ASSOCIATED WITH THE BUSINESS OF THE COMPANY

Since cannabis continues to be a Controlled Substance under the United States Federal Controlled Substances Act, there can be no assurance that the operations of the Company may be deemed to be criminal in nature and/or subject the Company to substantial civil penalties.

MedMen both directly and indirectly engages in the medical and adult-use marijuana industry in the United States where local state law permits such activities. Investors are cautioned that in the United States, cannabis is largely regulated at the state level. To MedMen’s knowledge, there are to date a total of 33 states, and the District of Columbia, that have now legalized cannabis in some form, including the states in which MedMen operates. Notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a controlled substance under the CSA and as such, cultivation, distribution, sale and possession of cannabis violates federal law in the United States. The inconsistency between federal and state laws and regulations is a major risk factor.

As a result of the Sessions Memo, federal prosecutors are free to utilize their prosecutorial discretion to decide whether to prosecute cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions. No direction was given to federal prosecutors in the Sessions Memo as to the priority they should ascribe to such cannabis activities, and as a result it is uncertain how active federal prosecutors will be in relation to such activities. Due to the ambiguity of the Sessions Memo, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law.

Federal law pre-empts state law in these circumstances, so that the federal government can assert criminal violations of federal law despite state law. The level of prosecutions of state-legal cannabis operations is entirely unknown, nonetheless the stated position of the current administration is hostile to legal cannabis, and furthermore may be changed at any time by the Department of Justice, to become even more aggressive. The Sessions Memo lays the groundwork for United States Attorneys to take their cues on enforcement priority directly from the Attorney General’s office by referencing federal law enforcement priorities set by former Attorney General Jeff Sessions. It is unclear what position the new Attorney General will take. If the Department of Justice policy were to be to aggressively pursue financiers or equity owners of cannabis-related business, and United States Attorneys followed such Department of Justice policies through pursuing prosecutions, then MedMen could face (i) seizure of its cash and other assets used to support or derived from its cannabis subsidiaries; and (ii) the arrest of its employees, directors, officers, managers and investors, who could face charges of ancillary criminal violations of the CSA for aiding and abetting and conspiring to violate the CSA by virtue of providing financial support to state-licensed or permitted cultivators, processors, distributors, and/or retailers of cannabis. Additionally, as has recently been affirmed by U.S. Customs and Border Protection, employees, directors, officers, managers and investors of MedMen who are not U.S. citizens face the risk of being barred from entry into the United States for life.

Now that the Cole Memo has been rescinded by former Attorney General Jeff Sessions, the Department of Justice under the current administration or an aggressive federal prosecutor could allege that MedMen and the MedMen Board and, potentially its shareholders, “aided and abetted” violations of federal law by providing finances and services to its operating subsidiaries. Under these circumstances, it is possible that the federal prosecutor would seek to seize the assets of MedMen, and to recover the “illicit profits” previously distributed to shareholders resulting from any of the foregoing financing or services. In these circumstances, MedMen’s operations would cease, MedMen Shareholders may lose their entire investment and directors, officers and/or MedMen Shareholders may be left to defend any criminal charges against them at their own expense and, if convicted, be sent to federal prison.

Violations of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on MedMen, including its reputation and ability to conduct business, its holding (directly or indirectly) of medical and adult-use cannabis licenses in the United States, the listing of its securities on the CSE or other applicable exchanges, its capital, financial position, operating results, profitability or liquidity or the market price of its listed securities.

Overall, an investor’s contribution to and involvement in MedMen’s activities may result in federal civil and/or criminal prosecution, including forfeiture of his, her or its entire investment.

The Company’s business is highly regulated and dependent in large part on the ability to obtain or renew government permits and licenses for its current and contemplated operations, of which there can be no assurance.

MedMen’s business is subject to a variety of laws, regulations and guidelines relating to the cultivation, manufacture, management, transportation, storage, sale and disposal of marijuana, including laws and regulations relating to health and safety, the conduct of operations and the protection of the environment. Achievement of MedMen’s business objectives are contingent, in part, upon compliance with applicable regulatory requirements and obtaining all requisite regulatory approvals. Changes to such laws, regulations and guidelines due to matters beyond the control of MedMen may cause material adverse effects to MedMen.

MedMen is required to obtain or renew government permits and licenses for its current and contemplated operations. Obtaining, amending or renewing the necessary governmental permits and licenses can be a time-consuming process potentially involving numerous regulatory agencies, involving public hearings and costly undertakings on MedMen’s part. The duration and success of MedMen’s efforts to obtain, amend and renew permits and licenses are contingent upon many variables not within its control, including the interpretation of applicable requirements implemented by the relevant permitting or licensing authority. MedMen may not be able to obtain, amend or renew permits or licenses that are necessary to its operations. Any unexpected delays or costs associated with the permitting and licensing process could impede the ongoing or proposed operations of MedMen. To the extent necessary permits or licenses are not obtained, amended or renewed, or are subsequently suspended or revoked, MedMen may be curtailed or prohibited from proceeding with its ongoing operations or planned development and commercialization activities. Such curtailment or prohibition may result in a material adverse effect on MedMen’s business, financial condition, results of operations or prospects.

While MedMen’s compliance controls have been developed to mitigate the risk of any material violations of any license or certificate it holds arising, there is no assurance that MedMen’s licenses or certificates will be renewed by each applicable regulatory authority in the future in a timely manner. Any unexpected delays or costs associated with the licensing renewal process for any of the licenses or certificates held by MedMen could impede the ongoing or planned operations of MedMen and have a material adverse effect on MedMen’s business, financial condition, results of operations or prospects.

MedMen may become involved in a number of government or agency proceedings, investigations and audits. The outcome of any regulatory or agency proceedings, investigations, audits, and other contingencies could harm MedMen’s reputation, require MedMen to take, or refrain from taking, actions that could harm its operations or require MedMen to pay substantial amounts of funds, harming its financial condition. There can be no assurance that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial costs or a diversion of management’s attention and resources or have a material adverse impact on MedMen’s business, financial condition, results of operations or prospects.

Please see “United States Regulatory Environment” above for additional details as to the license renewal process in the states in which the Company operates or has pending disclosed acquisitions or license applications

Public Opinion and Perception

Government policy changes or public opinion may also result in a significant influence over the regulation of the cannabis industry in the United States, Canada or elsewhere. Public opinion and support for medical and adult-use marijuana has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use marijuana, it remains a controversial issue subject to differing opinions surrounding the level of legalization (for example, medical marijuana as opposed to legalization in general). Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of marijuana in general, or associating the consumption of adult-use and medical marijuana with illness or other negative effects or events, could have a material adverse effect on MedMen’s business, results of operations or prospects. There is no assurance that such adverse publicity reports or other media attention will not arise. A negative shift in the public’s perception of cannabis, including vaping or other forms of cannabis administration, in the United States, Canada or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical and/or adult-use cannabis, thereby limiting the number of new state jurisdictions into which MedMen could expand and perception of negative health effects from the use of vaporizers to consume cannabis could result in state and local prohibitions on the sale of vaping products for an indefinite period of time. Any inability to fully implement MedMen’s expansion strategy may have a material adverse effect on MedMen’s business, results of operations or prospects. Among other things, such as shift could also cause states that have already legalized medical and/or adult-use cannabis to reevaluate the extent of and introduce new restrictions on the permitted activities and permitted cannabis products within their jurisdictions, which may have a material adverse effect on the Company’s business, results of operations or prospects. Recent medical alerts by the CDC and state health agencies on vaping related illness and other issues directly related to cannabis consumption could potentially create an inability to fully implement the Company’s expansion strategy or could restrict the products which the Company sells at its existing operations, which may have a material adverse effect on the Company’s business, results of operations or prospects.

Adverse legal, regulatory or political changes could have a material adverse effect on the Company’s current and planned operations.

The success of the business strategy of MedMen depends on the legality of the cannabis industry. The political environment surrounding the cannabis industry in general can be volatile and the regulatory framework remains in flux. To MedMen’s knowledge, there are to date a total of 47 states, and the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam that have legalized cannabis in some form, including the states in which MedMen operates; however, the risk remains that a shift in the regulatory or political realm could occur and have a drastic impact on the industry as a whole, adversely impacting MedMen’s business, results of operations, financial condition or prospects.

Delays in enactment of new state or federal regulations could restrict the ability of MedMen to reach strategic growth targets and lower return on investor capital. The strategic growth strategy of MedMen is reliant upon certain federal and state regulations being enacted to facilitate the legalization of medical and adult-use cannabis. If such regulations are not enacted, or enacted but subsequently repealed or amended, or enacted with prolonged phase-in periods, the growth targets of MedMen, and thus, the effect on the return of investor capital, could be detrimental. MedMen is unable to predict with certainty when and how the outcome of these complex regulatory and legislative proceedings will affect its business and growth.

Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, MedMen’s business, results of operations, financial condition and prospects would be materially adversely affected. It is also important to note that local and city ordinances may strictly limit and/or restrict the sale of cannabis in a manner that will make it extremely difficult or impossible to transact business that is necessary for the continued operation of the cannabis industry. Federal actions against individuals or entities engaged in the cannabis industry or a repeal of applicable cannabis related legislation could adversely affect MedMen and its business, results of operations, financial condition and prospects.

MedMen is aware that multiple states are considering special taxes or fees on businesses in the cannabis industry. It is a potential yet unknown risk at this time that other states are in the process of reviewing such additional fees and taxation. This could have a material adverse effect upon MedMen’s business, results of operations, financial condition or prospects.

The commercial medical and adult-use cannabis industry is in its infancy and MedMen anticipates that such regulations will be subject to change as the jurisdictions in which MedMen does business matures. MedMen has in place a detailed compliance program headed by its SVP of Legal who oversees, maintains, and implements the compliance program and personnel. In addition to MedMen’s robust legal and compliance departments, MedMen also has local regulatory/compliance counsel engaged in every jurisdiction (state and local) in which it operates. Such counsel regularly provides legal advice to MedMen regarding compliance with state and local laws and regulation and MedMen’s legal and compliance exposures under United States federal law. MedMen’s compliance program emphasizes security and inventory control to ensure strict monitoring of cannabis and inventory from delivery by a licensed distributor to sale or disposal. Additionally, MedMen has created comprehensive standard operating procedures that include detailed descriptions and instructions for receiving shipments of inventory, inventory tracking, recordkeeping and record retention practices related to inventory, as well as procedures for performing inventory reconciliation and ensuring the accuracy of inventory tracking and recordkeeping. MedMen will continue to monitor compliance on an ongoing basis in accordance with its compliance program, standard operating procedures, and any changes to regulation in the cannabis industry.

Overall, the medical and adult-use cannabis industry is subject to significant regulatory change at the local, state and federal levels. The inability of MedMen to respond to the changing regulatory landscape may cause it to not be successful in capturing significant market share and could otherwise harm its business, results of operations, financial condition or prospects.

Risk of Civil Asset Forfeiture

Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.

In the event that any of MedMen’s operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime.

MedMen is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), Sections 1956 and 1957 of U.S.C. Title 18 (the Money Laundering Control Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, the Criminal Code (Canada) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of the laws and regulations governing financial institutions in the United States. The lack of banking and financial services presents unique and significant challenges to businesses in the marijuana industry. The potential lack of a secure place in which to deposit and store cash, the inability to pay creditors through the issuance of checks and the inability to secure traditional forms of operational financing, such as lines of credit, are some of the many challenges presented by the unavailability of traditional banking and financial services.

In February 2014, FinCEN issued a memo (the “FinCEN Memo”) providing instructions to banks seeking to provide services to cannabis-related businesses. The FinCEN Memo states that in some circumstances, it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. It refers to supplementary guidance that former Deputy Attorney General James M. Cole issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA. While the FinCEN Memo has not been rescinded by the Department of Justice at this time, it remains unclear whether the current administration will follow its guidelines. Overall, the Department of Justice continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank Secrecy Act, that occur in any state, including in states that have legalized the applicable conduct and the Department of Justice’s current enforcement priorities could change for any number of reasons, including a change in the opinions of the President of the United States or the United States Attorney General. A change in the Department of Justice’s enforcement priorities could result in the Department of Justice prosecuting banks and financial institutions for crimes that previously were not prosecuted.

In the event that any of MedMen’s operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of MedMen to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on the Subordinate Voting Shares in the foreseeable future, in the event that a determination was made that MedMen’s proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, MedMen may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

There remains doubt and uncertainty that MedMen will be able to legally enforce contracts it enters into.

It is a fundamental principle of law that a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal at a federal level, judges in multiple U.S. states have on a number of occasions refused to enforce contracts, including for the repayment of money when the loan was used in connection with activities that violate federal law, even if there is no violation of state law. There remains doubt and uncertainty that MedMen will be able to legally enforce contracts it enters into if necessary. MedMen cannot be assured that it will have a remedy for breach of contract, which could have a material adverse effect on MedMen’s business, revenues, operating results, financial condition and prospects.

Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder.

MedMen’s operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect MedMen’s operations.

Government approvals and permits are currently, and may in the future, be required in connection with MedMen’s operations. To the extent such approvals are required and not obtained, MedMen may be curtailed or prohibited from its current or proposed production, manufacturing or sale of marijuana or marijuana products or from proceeding with the development of its operations as currently proposed.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. MedMen may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

Amendments to current laws, regulations and permits governing the production, manufacturing or sale of marijuana or marijuana products, or more stringent implementation thereof, could have a material adverse impact on MedMen and cause increases in expenses, capital expenditures or production or manufacturing costs or reduction in levels of production, manufacturing or sale or require abandonment or delays in development.

Since Section 280E of the Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances, the Company will be precluded from claiming certain deductions otherwise available to non-marijuana businesses and, as a result, an otherwise profitable business may in fact operate at a loss after taking into account its income tax expenses.

Section 280E of the Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the CSA). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are licensed under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to cannabis businesses.

Overall, under Section 280E of the Code, normal business expenses incurred in the business of selling marijuana and its derivatives are not deductible in calculating income tax liability. Therefore, the Company will be precluded from claiming certain deductions otherwise available to non-marijuana businesses and, as a result, an otherwise profitable business may in fact operate at a loss after taking into account its income tax expenses. There is no certainty that the impact that Section 280E has on the Company’s margins will ever be reduced.

If MedMen were to experience a bankruptcy, there is no guarantee that U.S. federal bankruptcy protections would be available to MedMen’s United States operations, which would materially adversely affect prospects of MedMen and on the rights of lenders to and securityholders of MedMen.

Because the use of cannabis is illegal under federal law, many courts have denied cannabis businesses bankruptcy protections, thus making it very difficult for lenders to recoup their investments in the cannabis industry in the event of a bankruptcy. If MedMen were to experience a bankruptcy, there is no guarantee that U.S. federal bankruptcy protections would be available to MedMen’s United States operations, which could have a material adverse effect on the business, capital, financial condition and prospects of MedMen and on the rights of lenders to and securityholders of MedMen.

The audited financial statements of MedMen have been prepared on a going concern basis.

The audited financial statements of MedMen for the fiscal year ended June 29, 2019 have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. MedMen’s primary sources of capital resources are anticipated to be comprised of cash and cash equivalents and the issuance of equity and debt securities. MedMen will continuously monitor its capital structure and, based on changes in operations and economic conditions, may adjust the structure by issuing new shares or new debt as necessary. MedMen’s ability to continue as a going concern in the near-term is expected to be dependent on obtaining additional financing to settle its liabilities. In the long-term, MedMen’s ability to continue as a going concern is expected to be dependent on achieving and maintaining profitable operations. While MedMen has been successful in securing both equity and debt financing from the public and private capital markets to date as applicable in Canada, the United States and internationally, there are no guarantees that MedMen will be able to secure any such public or private equity or debt financing in the future on terms acceptable to MedMen, if at all, or be able to achieve profitability. This could in turn have a material adverse effect on MedMen’s business, financial condition, results of operations, cash flows or prospects.

As a high growth enterprise, MedMen does not have a history of profitability. As such, MedMen has no immediate prospect of generating profit from its intended operations. MedMen is therefore subject to many of the risks common to high growth enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial, and other resources and lack of earnings. In addition, the Company is currently incurring expenditures related to its operating activities that have generated negative operating cash flows. There is no assurance that the Company will generate sufficient revenues in the near future, and it may continue to incur negative operating cash flows for the foreseeable future. There is no assurance that MedMen will be successful in achieving a return on shareholders’ investment.

MedMen will require additional financing to achieve its business objectives.

The continued development of the Company will require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities or convertible debt, existing MedMen Shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. The Company has completed the sale and leaseback of certain properties and is contemplating completing the same in respect of additional properties. The reduction in the Company’s real estate assets could cause securing any additional debt financing to be more difficult or on less favorable terms to the Company, such as on higher interest rates, than as otherwise may have been expected. The Company will require additional financing to fund its operations until positive cash flow is achieved. Although the Company believes that it will be able to obtain the necessary funding as in the past, there can be no assurance of the success of these plans.

MedMen’s operations and financial condition could be adversely impacted by a material downturn in global financial conditions.

Following the onset of the credit crisis in 2008, global financial conditions were characterized by extreme volatility and several major financial institutions either went into bankruptcy or were rescued by governmental authorities. While global financial conditions subsequently stabilized, there remains considerable risk in the system given the extraordinary measures adopted by government authorities to achieve that stability. Global financial conditions could suddenly and rapidly destabilize in response to future economic shocks, as government authorities may have limited resources to respond to future crises.

Future economic shocks may be precipitated by a number of causes, including a rise in the price of oil, geopolitical instability and natural disasters. Any sudden or rapid destabilization of global economic conditions could impact MedMen’s ability to obtain equity or debt financing in the future on terms favorable to MedMen. Additionally, any such occurrence could cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. Further, in such an event, MedMen’s operations and financial condition could be adversely impacted.

Furthermore, general market, political and economic conditions, including, for example, inflation, interest and currency exchange rates, structural changes in the cannabis industry, supply and demand for commodities, political developments, legislative or regulatory changes, social or labor unrest and stock market trends will affect MedMen’s operating environment and its operating costs and profit margins and the price of its securities. Any negative events in the global economy could have a material adverse effect on MedMen’s business, financial condition, results of operations or prospects.

The global COVID-19 pandemic has and will continue to have an adverse effect on our results of operations.

The novel strain of coronavirus, COVID-19, is believed to have been first identified in China in late 2019 and has spread globally. The rapid spread has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures may continue to impact all or portions of our workforce, operations, investors, suppliers and customers. We have taken steps to manage the effect of the pandemic on our corporate business and on the assets we manage which has included suspending any unnecessary capital improvements; (ii) furloughing any non-essential employees; and (iii) having constant communications with lenders to receive additional facilities and suspend compliance with certain financial covenants. Despite being deemed as an essential retailer in its core markets, the Company has experienced a negative impact on sales in certain markets as a result of shelter-at-home orders, social distancing efforts, restrictions on the maximum allowable number of people within a retail establishment and declining tourism. Certain markets, such as California and Nevada, experienced a greater impact on sales due to reduced store hours and foot traffic in certain locations. Other markets, such as Illinois, Florida and New York have not been significantly impacted by COVID-19 and in some cases, stores in those markets have generated increased sales.

Due to its strong vendor partnerships in each market, the Company has not experienced a significant impact to its supply chain in each market. Specifically, on March 30, 2020, the Company announced the withdrawal of its fiscal year 2020 and 2021 revenue and store count guidance provided on December 11, 2019 due to uncertainty surrounding the magnitude of the pandemic and its impact on retail operations (both existing and planned) in its core markets.

While the Company continues to execute on its efforts to improve store profitability, reduce selling, general and administrative expense and delay capital-intensive projects, the Company is reassessing the timing of these cash flow milestones due to the potential impact of COVID-19 on its turnaround plan. To date, the Company has implemented certain safety measures to ensure the safety of its customers and associates, which may have the effect of discouraging shopping or limiting the occupancy of our stores. Store operations in California and Nevada have been modified, with an increased focus on direct-to-consumer delivery and enabling a curbside pickup option for its customers. The Company leveraged its technology team to build the enhanced omni-channel functionality in, and expects to continue offering, a variety of purchasing options for its customers. These measures, and any additional measures that have been and may continue to be taken in response to the COVID-19 pandemic, have substantially decreased and may continue to decrease, the number of customers that visit our stores which has had, and will likely continue to have a material adverse effect on our business, financial condition and results of operations.

In recent weeks, the COVID-19 pandemic has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital markets, which could increase the cost of and accessibility to capital. Given that the COVID-19 pandemic has caused a significant economic slowdown it appears increasingly likely that it could cause a global recession, which could be of an unknown duration. A global recession would have a significant impact on our ongoing operations and cash flows. There has been a recent spike in the number of reported COVID-19 cases in many states where a substantial portion of the Company’s business and operations is located. The Company is unable to currently quantify the economic effect, if any, of this increase on the Company’s results of operations.

The ultimate magnitude of COVID-19, including the extent of its overall impact on our financial and operational results cannot be reasonably estimated at this time; however, the Company has experienced significant declines in sales. The overall impact will depend on the length of time that the pandemic continues, the extent to which it affects our ability to raise capital, and the effect of governmental regulations imposed in response to the pandemic, as well as uncertainty regarding all of the foregoing.

The Company’s existing credit facilities impose significant restrictive provisions on MedMen’s current and planned operations.

MedMen and MedMen Corp. have significant outstanding indebtedness further to which the assets of the Company and its subsidiaries as well as the ownership interests of certain subsidiaries of the Company, have been pledged as security for the obligations thereunder. In addition, the terms and conditions of the Company’s credit facilities contain restrictive covenants that limit the Company’s ability to engage in activities that may be in the Company’s long-term best interest. In addition, the terms and conditions thereof contain financial, operational and reporting covenants, and compliance with the covenants by the Company may increase the Company’s legal and financial costs, make certain activities, such as the payment of dividends or other distributions, more difficult or restricted, time-consuming or costly and increase demand on the Company’s systems and resources. The Company’s failure to comply with any such covenants, which may be affected by events beyond the Company’s control, could result in an event of default which, if not cured or waived, could result in the acceleration of repayment of the Company’s debt or realization on the security granted or trigger cross-default or cross-acceleration provisions in any other agreements, including as between agreements pertaining to the Company’s existing credit facilities, any of which would have a material adverse effect on the Company’s business, capital, financial condition, results of operations, cash flows and prospects.

The Company has substantial indebtedness and may not be able to refinance, extend or repay this indebtedness on a timely basis or at all.

The Company has a substantial amount of existing indebtedness. If the Company is unable to raise sufficient capital to repay these obligations at maturity and is otherwise unable to extend the maturity dates or refinance these obligations, the Company would be in default. The Company cannot provide any assurances that it will be able to raise the necessary amount of capital to repay these obligations, that any obligations that are convertible will be converted into equity or that it will be able to extend the maturity dates or otherwise refinance these obligations. Upon a default, the lenders under such debt would have the right to exercise their rights and remedies to collect, which would include the ability to foreclose on the Company’s assets. Accordingly, a default by the Company would have a material adverse effect on the Company’s business, capital, financial condition and prospects, and the Company would likely be forced to seek bankruptcy protection.

MedMen is a holding company and essentially all of its assets are the capital stock of its material subsidiaries.

MedMen is a holding company and essentially all of its assets are the capital stock of its material subsidiaries. As a result, investors in MedMen are subject to the risks attributable to its subsidiaries. Consequently, MedMen’s cash flows and ability to complete current or desirable future opportunities are dependent on the earnings of its subsidiaries. The ability of these entities to pay dividends and other distributions will depend on their operating results and will be subject to applicable laws and regulations which require that solvency and capital standards be maintained by such entities and contractual restrictions contained in the instruments governing their debt. In the event of a bankruptcy, liquidation or reorganization of any of MedMen’s material subsidiaries, holders of indebtedness and trade creditors may be entitled to payment of their claims from the assets of those subsidiaries before MedMen.

Adverse publicity reports or other media attention regarding the safety, efficacy and quality of marijuana in general, or associating the consumption of adult-use and medical marijuana with illness or other negative effects or events, could have such a material adverse effect on the Company’s results of operations.

MedMen believes the adult-use and medical marijuana industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the marijuana produced. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of marijuana products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the marijuana market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a material adverse effect on the demand for adult- use or medical marijuana and on the business, results of operations, financial condition, cash flows or prospects of MedMen. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of marijuana in general, or associating the consumption of adult-use and medical marijuana with illness or other negative effects or events, could have such a material adverse effect. There is no assurance that such adverse publicity reports, findings or other media attention will not arise.

MedMen may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances.

As a manufacturer and distributor of products designed to be ingested by humans, MedMen faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of marijuana involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur. As a manufacturer, distributor and retailer of adult-use and medical marijuana, or in its role as an investor in or service provider to an entity that is a manufacturer, distributor and/or retailer of adult-use or medical marijuana, MedMen may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against MedMen could result in increased costs, could adversely affect MedMen’s reputation with its clients and consumers generally, and could have a material adverse effect on the business, results of operations, financial condition or prospects of MedMen. There can be no assurances that MedMen will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of MedMen’s potential products or otherwise have a material adverse effect on the business, results of operations, financial condition or prospects of MedMen.

If one of MedMen’s brands were subject to product recalls, the image of that brand and MedMen could be harmed.

Cultivators, manufacturers, distributors and retailers of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. Such recalls cause unexpected expenses of the recall and any legal proceedings that might arise in connection with the recall. This can cause loss of a significant amount of sales. In addition, a product recall may require significant management attention. There can be no assurance that any of the products that MedMen sells will not be the subject of a product recall, regulatory action or lawsuit. Although MedMen has detailed procedures in place for testing its products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of MedMen’s brands were subject to recall, the image of that brand and MedMen could be harmed. Additionally, product recalls can lead to increased scrutiny of operations by applicable regulatory agencies, requiring further management attention and potential legal fees and other expenses.

MedMen is subject to those risks inherent in an agricultural business.

Adult-use and medical marijuana are agricultural products. There are risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of MedMen’s products.

Adult-use and medical marijuana growing operations consume considerable energy, making MedMen potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of MedMen.

Dependence on Suppliers and Skilled Labor.

The ability of MedMen to compete and grow will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that MedMen will be successful in maintaining its required supply of skilled labor, equipment, parts and components. It is also possible that the final costs of the major equipment contemplated by MedMen’s capital expenditure plans may be significantly greater than anticipated by MedMen’s management, and may be greater than funds available to MedMen, in which circumstance MedMen may curtail, or extend the timeframes for completing, its capital expenditure plans. This could have an adverse effect on the business, financial condition, results of operations or prospects of MedMen.

The Company has been and may in the future be subject to investigations, civil claims, lawsuits and other proceedings.

The Company may be subject to investigations (regulatory or otherwise), civil claims, lawsuits and other proceedings in the ordinary course of its business, across the various aspects of the Company’s business, including securities, employment, regulatory, intellectual property, commercial, real estate and other matters. In this regard, in late January 2019, Mr. Parker, the Company’s former Chief Financial Officer, filed a complaint against the LLC in the Superior Court of California, County of Los Angeles, seeking damages for claims relating to his employment. The Company is currently defending against this lawsuit, which seeks damages for wrongful termination, breach of contract, and breach of implied covenant of good faith and fair dealing. Mr. Parker’s employment agreement provided for the payment of severance in the event of termination without cause. The Company disputes the claims set forth in Mr. Parker’s lawsuit. See the Statement of Executive Compensation of the Company available under the Company’s profile on SEDAR at www.sedar.com for a summary of certain terms of Mr. Parker’s employment agreement. The results of any legal proceedings to the which the Company is or may become subject cannot be predicted with certainty due to the uncertainty inherent in regulatory actions and litigation, the difficulty of predicting decisions of regulators, judges and juries and the possibility that decisions may be reversed on appeal. Defense and settlement costs of legal disputes can be substantial, even with claims that have no merit. There can be no assurance that any pending or future litigation, regulatory, agency or civil proceedings, investigations and audits will not result in substantial costs or a diversion of management’s attention and resources. The cannabis industry is a new industry and the Company is a fast growing and relatively new enterprise. It is therefore more difficult to predict the types of claims, proceedings and allegations and the quantum of costs related to such claims and proceedings and the direct and indirect effects of such allegations that the Company may face or experience. Management is committed to conducting business in an ethical and responsible manner, which it believes will reduce the risk of legal disputes and allegations. However, if the Company is subject to legal disputes or negative allegations, there can be no assurances that these matters will not have a material adverse effect on the Company’s business, financial condition, capital, results of operations, cash flows or prospects. Should any litigation, proceeding or audit in which the Company becomes involved be determined against the Company, such a decision could adversely affect the Company’s business, financial condition, capital, results of operations, cash flows or prospects and the market price for the Subordinate Voting Shares and other listed securities of the Company. Any such litigation, proceeding or audit may also create a negative perception of the Company’s brand.

MedMen faces intense competition from other companies.

MedMen faces intense competition from other companies, some of which have longer operating histories and more financial resources and experience than MedMen. MedMen also expects to face additional competition from new entrants. To become and remain competitive, MedMen will require research and development, marketing, sales and support. MedMen may not have sufficient resources to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely affect the business, financial condition, results of operations or prospects of MedMen. Increased competition could materially and adversely affect the business, financial condition, results of operations or prospects of MedMen.

In addition, the pharmaceutical industry may attempt to dominate the marijuana industry through the development and distribution of synthetic products which emulate the effects and treatment of organic marijuana. If they are successful, the widespread popularity of such synthetic products could change the demand, volume and profitability of the marijuana industry. This could adversely affect the ability of MedMen to secure long-term profitability and success through the sustainable and profitable operation of its business. There may be unknown additional regulatory fees and taxes that may be assessed in the future.

Intellectual property risks.

MedMen has certain proprietary intellectual property, including but not limited to brands, trademarks, trade names, patents and proprietary processes. MedMen relies on this intellectual property, know-how and other proprietary information, and require employees, consultants and suppliers to sign confidentiality agreements. However, these confidentiality agreements may be breached, and MedMen may not have adequate remedies for such breaches. Third parties may independently develop substantially equivalent proprietary information without infringing upon any proprietary technology. Third parties may otherwise gain access to MedMen’s proprietary information and adopt it in a competitive manner. Any loss of intellectual property protection may have a material adverse effect on MedMen’s business, results of operations or prospects.

As long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance pursuant to the CSA, the benefit of certain federal laws and protections which may be available to most businesses, such as federal trademark and patent protection regarding the intellectual property of a business, may not be available to MedMen. As a result, MedMen’s intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, MedMen can provide no assurance that it will ever obtain any protection of its intellectual property, whether on a federal, provincial, state or local level. While many states do offer the ability to protect trademarks independent of the federal government, patent protection is wholly unavailable on a state level, and state-registered trademarks provide a lower degree of protection than would federally-registered marks.

MedMen is substantially reliant on the continued services of its management.

The success of MedMen is dependent upon the ability, expertise, judgment, discretion and good faith of its senior management. While employment agreements or management agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on MedMen’s business, operating results, financial condition or prospects.

MedMen is exposed to the risk that its employees, independent contractors and consultants may engage in fraudulent or other illegal activity.

MedMen is exposed to the risk that its employees, independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent unauthorized conduct that violates: (i) government regulations; (ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse laws and regulations; (iv) laws that require the true, complete and accurate reporting of financial information or data; or (v) contractual arrangements, including confidentiality requirements. It may not always be possible for MedMen to identify and deter misconduct by its employees and other third parties, and the precautions taken by MedMen to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting MedMen from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with applicable laws or regulations or contractual requirements. If any such actions are instituted against MedMen, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on MedMen’s business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of MedMen’s operations, any of which could have a material adverse effect on MedMen’s business, financial condition, results of operations or prospects.

The failure of MedMen’s information systems or the effect of any cyber-attacks may adversely impact MedMen’s reputation and results of operations.

MedMen’s operations depend, in part, on how well it and its suppliers protect networks, equipment, information technology (“IT”) systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. MedMen’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact MedMen’s reputation and results of operations.

MedMen has not experienced any material losses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that MedMen will not incur such losses in the future. MedMen’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, MedMen may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

In addition, MedMen collects and stores personal information about its customers and is responsible for protecting that information from privacy breaches. A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly customer lists and preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on MedMen’s business, financial condition, results of operations and prospects.

Risk associated with acquisitions.

As part of MedMen’s overall business strategy, MedMen has in the past and intends to continue to pursue select strategic acquisitions. The Company currently does not have any pending acquisitions. The success of any such acquisitions depends, in part, on the ability of MedMen to realize the anticipated benefits and synergies from integrating the applicable acquired entities or assets into the businesses of MedMen’s past and future acquisitions may expose it to potential risks, including risks associated with: (i) the integration of new operations, services and personnel; (ii) unknown or undisclosed liabilities; (iii) the diversion of resources from MedMen’s existing businesses; (iv) potential inability to generate sufficient revenue to offset new costs; (v) the expenses of acquisitions; and (vi) the potential loss of or harm to relationships with both employees and consultants and existing customers, vendors, suppliers, contractors and other applicable parties resulting from its integration of new businesses. In addition, any proposed acquisitions may be subject to regulatory approval.

While MedMen intends to conduct reasonable due diligence in connection with such strategic acquisitions, there are risks inherent in any acquisition. Specifically, there could be unknown or undisclosed risks or liabilities of such entities or assets for which MedMen is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely affect MedMen’s financial performance and results of operations. MedMen could encounter additional transaction and integration related costs or other factors such as the failure to realize all of the benefits from the acquisition. All of these factors could cause dilution to MedMen’s revenue per share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of the Subordinate Voting Shares and other listed securities of MedMen.

MedMen may not be able to successfully integrate and combine the operations, personnel and technology infrastructure of any such strategic acquisition with its existing operations. If integration is not managed successfully by MedMen’s management, MedMen may experience interruptions in its business activities, deterioration in its employee, customer or other relationships, increased costs of integration and harm to its reputation, all of which could have a material adverse effect on MedMen’s business, prospects, financial condition, results of operations and cash flows.

MedMen may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls.

The ability of MedMen to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of MedMen to deal with this growth may have a material adverse effect on MedMen’s business, financial condition, results of operations or prospects.

Effective internal controls, including financial reporting and disclosure controls and procedures, are necessary for MedMen to provide reliable financial reports, to effectively reduce the risk of fraud and to operate successfully as a public company. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm MedMen’s results of operations or cause it to fail to meet its reporting obligations. If MedMen or its auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in MedMen’s consolidated financial statements and materially adversely affect the trading price of the Subordinate Voting Shares and of other listed securities of MedMen.

Situations may arise in connection with potential acquisitions or opportunities where the other interests of interested directors and officers conflict with or diverge from the Company’s interests.

Certain of the Company’s directors and officers are, and may continue to be, or may become, involved in other business ventures through their direct and indirect participation in, among other things, corporations, partnerships and joint ventures, that are or may become competitors of the products and services the Company provides or intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Company’s interests. In accordance with applicable corporate law, directors who have a material interest in a contract or transaction or a proposed contract or transaction with the Company that is material to the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the transaction. In addition, the directors and officers are required to act honestly and in good faith with a view to the Company’s best interests. However, in conflict of interest situations, the Company’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.

Certain remedies may be limited.

MedMen’s governing documents may provide that the liability of MedMen Board and its officers is eliminated to the fullest extent permitted under the laws of the Province of British Columbia. Thus, MedMen and the MedMen Shareholders may be prevented from recovering damages for alleged errors or omissions made by the members of MedMen Board and its officers. MedMen’s governing documents may also provide that MedMen will, to the fullest extent permitted by law, indemnify members of the MedMen Board and its officers for certain liabilities incurred by them by virtue of their acts on behalf of MedMen.

The directors and officers of MedMen reside outside of Canada. Some or all of the assets of such persons may be located outside of Canada. Therefore, it may not be possible for investors to collect or to enforce judgments obtained in Canadian courts predicated upon the civil liability provisions of applicable Canadian securities laws against such persons. Moreover, it may not be possible for investors to effect service of process within Canada upon such persons.

RISKS ASSOCIATED WITH THE SECURITIES OF THE COMPANY

Voting control vests in MedMen’s outstanding Super Voting Shares which are held by our Executive Chairman of the Board.

Adam Bierman, our former Chief Executive Officer and a Director of MedMen, and Andrew Modlin, our former President and a Director of MedMen, were previously issued Super Voting Shares entitled to 1,000 votes per share which represented approximately 88.5% of the voting power in respect of MedMen’s outstanding shares as of December 31, 2019. Effective February 1, 2020, Mr. Bierman and Mr. Modlin agreed to surrender all of their respective Class A Super Voting Shares to the Company. Mr. Bierman’s Super Voting Shares have been cancelled. In connection with his departure and cancellation of his Super Voting Shares, the Company will compensate Mr. Bierman in the form of securities of which the number of issued securities and the aggregate amount is yet to be determined.As a result of the cancellation, Mr. Bierman does not hold any Super Voting Shares nor any securities convertible or exchangeable into Super Voting Shares. Mr. Modlin’s Super Voting Shares will automatically be cancelled upon the expiration of the proxy granted in December 2019 by Mr. Modlin to Ben Rose, Executive Chairman of the Board, which expiration is contemplated to occur in December 2020. Upon the expiration of the proxy in December 2020, Mr. Modlin will not hold any Super Voting Shares nor any securities convertible or exchangeable into Super Voting Shares . As a result, the Company will only have one class of outstanding shares, the Class B Subordinate Voting Shares, by the end of calendar year 2020.

As a result, Mr. Rose has the ability to control the outcome of matters submitted to MedMen Shareholders for approval, including the election and removal of directors and any arrangement, sale of all or substantially all of the assets, fundamental change or change of business of MedMen.

The concentrated control through the Super Voting Shares could delay, defer, or prevent a change of control of MedMen, arrangement involving MedMen, sale of all or substantially all of the assets of MedMen, a fundamental change of MedMen or a change of business of MedMen that other MedMen Shareholders support. Conversely, this concentrated control could allow Mr. Rose to approve the consummation of such a transaction that other MedMen Shareholders do not support. In addition, Mr. Rose may make long-term strategic investment decisions and take risks that may not be successful and may seriously harm MedMen’s business.

As a directors and offices of MedMen, Mr. Rose has a substantial degree of control over the day-to-day management and the implementation of major strategic decisions of MedMen, subject to authorization and oversight by the MedMen Board. As a director and officer of MedMen, Mr. Rose owes a fiduciary duty to MedMen and is obligated to act honestly and in good faith with a view to the best interests of MedMen. As a MedMen Shareholder, even a controlling MedMen Shareholder, Mr. Rose will be entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of MedMen or the other MedMen Shareholders.

Voting control by GGP and other shareholders may limit your ability to influence the outcome of director elections and other matters requiring shareholder approval.

As of September 15, 2020, GGP beneficially owns 58.2% of the Company Subordinate Voting Shares and 31.9% of the voting power. Furthermore, pursuant to the GGC Facility, GGP has the right to nominate a majority of the Company’s Board of Directors while the aggregate principal amount outstanding under the Notes is more than $25.0 million, and, while the Notes are outstanding, the lenders will be entitled to the collective rights to appoint a representative to attend all meetings of the Board of Directors in a non-voting observer capacity. This concentration of control may adversely affect the trading price for the Subordinate Voting Shares because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Also, some or all of our significant stockholders, if they were to act together, would be able to control our management and affairs and matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. In addition, GGP’s interests may not align with our interests as a company or the interests of our other shareholders. Accordingly, GGP could cause us to enter into transactions or agreements of which our shareholders would not approve or make decisions with which our shareholders would disagree. This concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other shareholders and may prevent our shareholders from realizing a premium over the current market price for their shares of common stock. Furthermore, our significant shareholders may also have interests that differ from yours and may vote their Subordinate Voting Shares in a way with which you disagree and which may be adverse to your interests.

Unpredictability caused by MedMen’s capital structure.

Given the other unique features of the capital structure of MedMen, including the existence of a significant amount of redeemable equity securities that have been issued by, and are issuable pursuant to the exercise, conversion or exchange of the applicable convertible securities of, certain subsidiaries of MedMen, such subsidiaries being MedMen Corp. and the LLC, which equity securities are redeemable from time to time for Subordinate Voting Shares or cash, in accordance with their terms, MedMen is not able to predict whether this structure and control will result in a lower trading price for or greater fluctuations in the trading price of the Subordinate Voting Shares or will result in adverse publicity to MedMen or other adverse consequences.

Additional issuance of securities may result in dilution.

MedMen may issue additional securities in the future, which may dilute a MedMen Shareholder’s holdings in MedMen. MedMen’s articles permit the issuance of an unlimited number of Subordinate Voting Shares, and MedMen Shareholders will have no pre-emptive rights in connection with such further issuance. The MedMen Board has discretion to determine the price and the terms of further issuances. Moreover, additional Subordinate Voting Shares will be issued by MedMen on the exercise, conversion or redemption of certain outstanding securities of MedMen, MedMen Corp. and the LLC in accordance with their terms. While the Company currently does not have any pending acquisitions, it may also issue Subordinate Voting Shares to finance future acquisitions. MedMen cannot predict the size of future issuances of Subordinate Voting Shares or the effect that future issuances and sales of Subordinate Voting Shares will have on the market price of the Subordinate Voting Shares. Issuances of a substantial number of additional Subordinate Voting Shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the Subordinate Voting Shares. With any additional issuance of Subordinate Voting Shares, investors will suffer dilution to their voting power and MedMen may experience dilution in its revenue per share.

Additionally, the subsidiaries of MedMen, such as MedMen Corp. and the LLC, may issue additional securities, including MedMen Corp Redeemable Shares, LLC Redeemable Units and LTIP Units to new or existing shareholders, members or securityholders, including in exchange for services performed or to be performed on behalf of such entities or to finance future acquisitions. Any such issuances could result in substantial dilution to the indirect equity interest of the holders of Subordinate Voting Shares in the LLC.

The market price of the Company’s Subordinate Voting Shares is volatile and subject to wide fluctuations.

The market price of the Subordinate Voting Shares has been and may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond MedMen’s control. This volatility may affect the ability of holders of Subordinate Voting Shares or such other securities to sell their securities at an advantageous price. Market price fluctuations in the Subordinate Voting Shares or such other securities may be due to MedMen’s operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions or competitive, regulatory or economic trends, adverse changes in the economic performance or market valuations of companies in the industry in which MedMen operates, acquisitions, dispositions, strategic partnerships, joint ventures, capital commitments or other material public announcements by MedMen or its competitors or government and regulatory authorities, operating and share price performance of the companies that investors deem comparable to MedMen, addition or departure of MedMen’s executive officers, directors and other key personnel, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Subordinate Voting Shares or such other securities.

Financial markets have at times historically experienced significant price and volume fluctuations that have particularly affected the market prices of equity and convertible securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Subordinate Voting Shares and other listed securities of MedMen from time to time, including the September Warrants and the December Warrants, may decline even if MedMen’s operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue or arise, MedMen’s operations may be adversely impacted and the trading price of the Subordinate Voting Shares and such other securities may be materially adversely affected.

Item 2. Financial Information.

We are a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act. Accordingly, we have omitted certain information called for by this Item as permitted by applicable scaled disclosure rules. 

Selected Financial Data

The following table sets forth the Company’s selected consolidated financial data for the periods, and as of the dates, indicated. The (i) Consolidated Statement of Operations data for the fiscal year ended June 29, 2019 and (ii) Consolidated Balance Sheet data as of June 29, 2019 have been derived from the audited Consolidated Financial Statements of the Company and its subsidiaries, which are included in Item 13 of this registration statement on Form 10.

The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and the Consolidated Financial Statements and the accompanying notes presented in Item 13 of this registration statement. The Company’s Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and on a going concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the accompanying notes presented in Item 13 of this registration statement. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Disclosure Regarding Forward-Looking Statements,” Item 1A-Risk Factors” and elsewhere in this registration statement.

Basis of Presentation

All references to “$” and “dollars” refer to U.S. dollars. References to C$ refer to Canadian dollars. Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to rounding.

Fiscal Period

The Company’s fiscal year is the 52- or 53- week period ending on the last Saturday in June. In a 52-week fiscal year, each of the Company’s quarterly periods will comprise 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. The Company’s first 53-week fiscal year will occur in fiscal year 2024. The Company’s fiscal year ended June 29, 2019 included 52 weeks.

Fiscal Year 2019 Highlights

September Bought Deal Equity Financing

On September 27, 2018, MedMen completed a bought deal financing of 15,681,818 units at a price of C$5.50 per Unit, which included the exercise in full by the underwriters of their over-allotment option, for aggregate gross proceeds of approximately (C$86,250,000). Each Unit is comprised of one Class B Subordinate Voting Share of the Company (a “Class B Share”) and one-half of one Class B Share purchase warrant (each full warrant, a “Warrant”). Each Warrant entitles the holder thereof to purchase one Class B Share at an exercise price of C$6.87, for a period of 36 months following the closing of the offering. On September 27, 2018, the September Warrants commenced trading on the CSE under the ticker symbol “MMEN.WT”.

October Term Loan

On October 1, 2018, MedMen Corp. completed a $73,275,000 senior secured term loan (the “October Term Loan”) with funds managed by Hankey Capital, LLC and with an affiliate of Stable Road Capital as the largest loan participant pursuant to a Senior Secured Commercial Loan Agreement entered into as of October 1, 2018 between MedMen Corp. and Hankey Capital, LLC. As of October 3, 2018, pursuant to the terms of the October Term Loan, the principal amount of the October Term Loan was increased to $77,675,000. The principal amount of the October Term Loan will accrue interest at a rate of 7.5% per annum, paid monthly, with a maturity date of October 1, 2020. The ownership interests of certain of the Company’s subsidiaries have been pledged as security for the obligations under the October Term Loan. Additionally, the Company guaranteed the obligations of MedMen Corp. under the October Term Loan. The principal amount of the October Term Loan has been and is anticipated to be used for acquisitions, capital expenditures and other corporate purposes.

December Bought Deal Equity Financing

On December 5, 2018, the Company completed a bought deal public offering of 13,640,000 units (the “December Units”), at a price of C$5.50 per December Unit, for aggregate gross proceeds of C$75,020,000. Each December Unit consisted of one Subordinate Voting Share and one Subordinate Voting Share purchase warrant (each, a “December Warrant”). Each December Warrant entitles the holder thereof to acquire, subject to adjustment in certain circumstances, one Subordinate Voting Share at an exercise price of C$6.87 until September 27, 2021. The Warrants are traded on the CSE under the ticker symbol “MMEN.WT”.

Strategic Partnership with Gotham Green Partners

On March 22, 2019, the Company signed a binding term sheet for a senior secured convertible credit facility (the “Facility”) of up to $250.0 million arranged by Gotham Green Partners (“GGP”). The Company subsequently entered into definitive documentation on April 23, 2019 and closed on a portion of the initial funding tranche. The Facility has been and will be accessed through issuances to the lenders of convertible senior secured notes (“Notes”) co-issued by the Company and MM CAN USA, Inc. in an aggregate amount of up to $250.0 million. As of June 29, 2019, $100.0 million has been funded under the Facility. Refer to “Note 16 - Senior Secured Convertible Credit Facility” of the audited Consolidated Financial Statements for the fiscal year ended June 29, 2019.

At-the-Market Equity Financing Program

On April 10, 2019, the Company established an At-the-Market equity financing program (the “ATM Program”)with Canaccord Genuity Corp. (“Canaccord”) pursuant to which the Company may, from time to time, sell Class B Subordinate Voting Shares at prevailing trading prices at the time of sale for aggregate gross proceeds of up to C$60,000,000. Since Class B Subordinate Voting Shares are distributed under the ATM Program at trading prices prevailing at the time of sale, prices may vary between purchasers and during the period of distribution. The Company has used and intends to use the net proceeds from the sale of Class B Subordinate Voting Shares under the ATM Program principally for general and administrative expenses, working capital needs and other general corporate purposes.

During the fiscal fourth quarter of 2019, the Company sold an aggregate of 5,168,500 Class B Subordinate Voting Shares under the ATM Program, for aggregate gross proceeds of C$18,576,517, with an average price per share of C$3.59. In addition, an aggregate of C$557,296 was paid to Canaccord as its sales commission, resulting in aggregate net proceeds to the Company of C$18,019,221.

Real Estate Sale and Leaseback Transactions

On October 18, 2018, the Company entered into an agreement to sell three properties to the newly formed Treehouse Real Estate Investment Trust, Inc. (the “REIT”). This agreement was revised on October 22, 2018 in which under the revised agreement, the Company completed the sale of two properties to Stable Road Capital on November 7, 2018. The two properties comprising the transaction are MedMen Abbot Kinney (1308-1312 Abbot Kinney Boulevard, Venice, California) and MedMen Downtown Las Vegas (823 South 3rd Street, Las Vegas, Nevada) for $16.5 million and $7.6 million, respectively. The sale to Treehouse would take place following capitalization of Treehouse through a private placement, which occurred in January 2019.

On January 7, 2019, the Company announced that the REIT had completed its first round of capital raise at $133.0 million and is expected to partially use the funds to purchase properties from the Company.

During the fiscal year ended June 29, 2019, the Company completed the sale of five properties to the REIT for net proceeds, after repayment of debt, of approximately $49.7 million. The five properties included in the sale were:

The Company has used and intends to use such net proceeds from the sale of properties with Stable Road Capital and the REIT to assist in funding the build-out of its national footprint. The Company has leased such properties sold at market rates for cannabis businesses under long-term leases.

All current real estate assets of the Company have been offered for sale to and the REIT. It is expected that additional sale and leaseback transactions will occur between the REIT and the Company over the next twelve months. These additional potential transactions include real estate related to retail stores and cultivation and production facilities. Any such sale of properties remains subject to ongoing due diligence by the REIT, successful negotiation and execution of definitive documentation, final approval of the Company and the REIT board and the satisfaction of customary closing conditions. The REIT has a three-year right of first offer on additional MedMen-owned facilities and development projects. The Company expects to lease all properties sold at market rates for cannabis businesses under long-term leases.

Overall, the purpose of the sale and leaseback transactions is to allow MedMen to raise cash equal to the excess of the sale price of the applicable property over any debt tied to the applicable property, repay any such debt and reduce interest expense related to any such debt. In the longer term, removing real property from MedMen’s balance sheet is intended to free up capital for uses that MedMen believes will result in a greater return on capital for its investors. It will also transfer the risk and opportunity of fluctuating real estate prices from MedMen to the purchasers of the applicable properties.

Recent Business Acquisitions

LVMC, LLC, d/b/a Cannacopia

On October 9, 2018, the Company completed the acquisition of all of the assets of LVMC, LLC, d/b/a Cannacopia, a Nevada limited liability company (“LVMC”). The assets consist primarily of the state of Nevada issued dispensary license and customer relationships. The Company began retail operations at its current location in November 2018 with the intention of moving operations to real property purchased at 3035 Highland Drive, Las Vegas, Nevada 89109 and 3025 South Highland Drive, Las Vegas, Nevada 89109. The Company acquired all of the issued and outstanding shares of LVMC for aggregate consideration of $10,075,000 in cash.

Monarch

On December 3, 2018, the Company completed the acquisition of Monarch, a Scottsdale, Arizona-based licensed medical cannabis license holder with dispensary, cultivation and processing operations, from WhiteStar Solutions LLC (“WhiteStar”) through the acquisition of Omaha Management Services, LLC. In addition, the Company acquired from WhiteStar their exclusive co-manufacturing and licensing agreements with Kiva, Mirth Provisions and HUXTON for the state of Arizona. The Company acquired all of the issued and outstanding shares of Monarch for aggregate consideration of $21,098,012, composed of $6,986,541 in cash, the issuance of 4,019,065 Subordinate Voting Shares at the trading price of $3.32 per share on the acquisition date and an earn out payment. As part of the purchase price, the sellers are entitled up to $1,000,000, payable in Subordinate Voting Shares of the Company, if certain revenue targets are met within one year after the close of the acquisition.

Viktoriya’s Medical Supplies LLC, d/b/a Buddy’s Cannabis

On January 15, 2019, the Company completed the acquisition of Viktoriya’s Medical Supplies LLC (“VMS”), d/b/a Buddy’s Cannabis. VMS owns a microbusiness license to retail, distribute, cultivate and manufacture cannabis onsite in San Jose, California. The Company acquired all of the issued and outstanding shares of VMS for aggregate consideration of $10,300,000, which included $3,800,000 in cash and $6,500,000 in note payable.

Future Transactions Holdings LLC, d/b/a Seven Point

On February 4, 2019, the Company completed the acquisition of Future Transactions Holdings LLC (“Future Transactions”), d/b/a Seven Point, a licensed medical cannabis dispensary located in Oak Park, Illinois. The Company acquired all of the issued and outstanding shares of Future Transactions for aggregate consideration of $12,945,270, which is comprised of $3,050,000 in cash, $3,000,000 in note payable, and 2,117,238 Subordinate Voting Shares at the trading price of $3.26 per share on the acquisition date.

Kannaboost Technology Inc. and CSI Solutions LLC

On February 13, 2019, the Company completed the acquisition of Kannaboost Technology Inc. and CSI Solutions LLC (collectively referred to as “Level Up”). Level Up holds licenses for retail locations in Scottsdale and Tempe, as well as 25,000 square feet of cultivation and production capacity in Tempe and Phoenix. The Company acquired all of the issued and outstanding shares of Level Up for aggregate consideration of $31,169,438 which is comprised of $2,000,000 in cash, $15,000,000 in note payable, and 4,739,626 Subordinate Voting Shares at the trading price of $2.99 per share on the acquisition date. As part of the transaction, the Company also received a 40% stake in K.I.N.D. Concentrates.

PHSL, LLC, d/b/a SugarLeaf Trading Co.

On March 29, 2019, the Company completed the acquisition of PHSL, LLC, d/b/a SugarLeaf Trading Co. (“SugarLeaf”), an adult and medical use cannabis license holder in Seaside, California. The Company acquired 100% of the equity interest for aggregate consideration of $3,000,000 which is comprised of $750,000 in cash and $2,250,000 in note payable.

Factors Affecting Performance

Company management believes that the nascent cannabis industry represents an extraordinary opportunity in which the Company’s performance and success depend on a number of factors:

Trends

MedMen is subject to various trends that could have a material impact on the Company, its financial performance and condition, and its future outlook. A deviation from expectations for these trends could cause actual results to differ materially from those expressed or implied in forward-looking information included in this MD&A and the Company’s financial statements. These trends include, but are not limited to, the following:

Components of Results of Operations

Revenue

For the fiscal year ended June 29, 2019, the Company derived the majority of its revenue from direct sales to customers in its retail stores. Approximately 73% of revenue was generated from operations in California, with the remaining 27% from operations in New York, Nevada, Arizona, Illinois and Florida. Revenue through retail stores is recognized upon delivery of the goods to the customer and when collection is reasonably assured, net of an estimated allowance for sales returns.

Cost of Goods Sold and Gross Profit

Gross profit is revenue less cost of goods sold, realized fair value of inventory sold and unrealized gains and losses from the transformation of biological assets. Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles and concentrates, as well as packaging and other supplies, fees for services and processing, and also includes allocated overhead, which includes allocations of rent, administrative salaries, utilities and related costs. Cannabis costs are affected by various state regulations that limit the sourcing and procurement of cannabis product, which may create fluctuations in gross profit over comparative periods as the regulatory environment changes. Gross margin measures gross profit as a percentage of revenue. 

Expenses

General and administrative expenses represent costs incurred in MedMen’s corporate offices, primarily related to personnel costs, including salaries, incentive compensation, benefits, share-based compensation and other professional service costs, including legal and accounting. Sales and marketing expenses consist of selling costs to support customer relationships and to deliver product to retail stores. It also includes a significant investment in marketing and brand activities and the corporate infrastructure required to support the ongoing business.

Income Taxes

MedMen is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the legal cannabis industry, the Company is subject to the limits of Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries. However, the state of California does not conform to IRC Section 280E and, accordingly, the Company deducts all operating expenses on its California Franchise Tax Returns.

Fiscal Year Ended June 29, 2019

Revenue

Revenue for the fiscal year ended June 29, 2019 was $130.0 million driven by contribution from both retail and wholesale revenues. Of the $130.0 million, $124.3 million, or 96%, is related to the Company’s retail operations in 23 active retail locations in the states of California, New York, Nevada, Arizona, Illinois and Florida. Of the Company’s national retail revenue, California generated $94.6 million in retail revenue, representing 73% of consolidated revenue for the fiscal year ended June 29, 2019. Since the Company’s inception, California is and continues to be the Company’s largest core market in which it operates. Four locations comprised 54% of California statewide revenue, one location comprised 69% of Nevada statewide revenue and one location comprised 47% of Arizona statewide revenue.

For the fiscal year ended June 29, 2019, wholesale revenue of $5.2 million was related to six cultivation and production facilities in the states of Nevada, California, New York, Florida and Arizona. During fiscal year 2018, the Company rolled out its wholesale channel to cultivate and produce cannabis products for its in-house brands [statemade] and MedMen Red which were launched during fiscal year 2019. The Company’s cultivation and production facilities primarily support its retail operations, noting wholesale revenue to third parties represented 4% of total consolidated revenue for the fiscal year ended June 29, 2019.

Cost of Goods Sold and Gross Profit

Cost of goods sold for the fiscal year ended June 29, 2019 was $68.5 million and gross profit was $61.5 million, representing a gross margin of 47%. Cost of goods sold and gross profit were driven primarily by the acquisitions of dispensaries and operationalization of licenses in California, New York, Nevada, Arizona, Illinois and Florida during the fiscal year ended June 29, 2019 in which Company opened an additional 12 active retail locations in the states of California, New York, Nevada, Arizona, Illinois and Florida for a total of 23 active retail locations. Statewide cost of goods sold in California represented 64% of consolidated cost of goods sold for the fiscal year ended June 29, 2019. Gross margin in the state of California and Arizona was 53% and 60%, respectively, while gross margin in the state of Nevada was 20% primarily due to the cultivation and production activities. For the fiscal year ended June 29, 2019, the Company operated six cultivation and production facilities in the states of Nevada, California, New York, Florida and Arizona. MedMen expects costs of goods sold to increase at a slower rate than the increase in revenue in the coming periods through leveraging of its supply chain and distribution to achieve higher gross margin rates.

Total Expenses

Total expenses, including general and administrative, sales and marketing and depreciation and amortization, for the fiscal year ended June 29, 2019 were $295.0 million, which represents 227% of revenue for the fiscal year ended June 29, 2019. Total expenses were primarily attributable to an increase in headcount and operating costs for retail stores acquired in California, Nevada, Arizona, Illinois and Florida as a result of the Company’s retail expansion strategy.

General and administrative expenses for the fiscal year ended June 29, 2019 were $244.0 million, or 83% of total expenses. General and administrative expenses incurred were primarily due to the growth of the Company’s operations and retail locations, resulting in $95.3 million in payroll and payroll related expenses for the increase in headcount at the corporate and retail level, and the retention of management talent through equity compensation, totaling $32.1 million. Given the Company’s 23 active retail locations and six cultivation and production facilities, total rent expense was $22.6 million for the fiscal year ended June 29, 2019. Further, the Company paid approximately $10.7 million in local and municipal taxes due to regulations in the various states in which MedMen operates in. 

Sales and marketing expenses for the fiscal year ended June 29, 2019 were $27.6 million, or 9% of total expenses Sales and marketing expenses incurred were primarily attributed to the increase in the Company’s retail locations and marketing and advertising efforts to promote the MedMen brand. During fiscal year 2019, the Company launched The New Normal, a campaign that focused on normalizing cannabis and reinforcing the leadership position of MedMen to drive customer visits in all of the Company’s markets. 

Depreciation and amortization for the fiscal year ended June 29, 2019 was $23.4 million, or 8% of total expenses. Depreciation and amortization expenses incurred is attributed to the growth of the Company’s operations through acquisitions, as well as significant property and equipment acquired in recent periods. For the fiscal year ended June 29, 2019, amortization expense represented $11.8 million, or 60%, of the Company’s depreciation and amortization expense and was primarily related to dispensary licenses and acquired customer relationships.

Total Other Expense 

Total other expense for the fiscal year ended June 29, 2019 was $29.7 million. Total other expense was mainly attributed to interest expense of $12.4 million given the Company’s debt balance and amortization of debt discount of $8.3 million, noting the Company raised $266.2 million through debt financing during fiscal year 2019. Refer to the “Fiscal Year 2019 Highlights” described in Item 2 above. In addition, during the fiscal year ended June 29, 2019, the Company incurred $7.6 million in expenditures related to restructuring of the Company’s operating model and corporate infrastructure. The Company also recognized $9.3 million related to loss on disposal of real estate properties.

Provision for Income Taxes

The provision for income taxes for the fiscal year ended June 29, 2019 was $1.9 million.

Net Loss

Net loss for the fiscal year ended June 29, 2019 was $261.3 million and driven by the factors related to revenue and expenses described above. More specifically, expenses related to salaries and benefits, rent, security, fees associated with maintaining licenses, acquisition costs, insurance, and banking and processing fees, are all related to the Company’s retail expansion and the development of corporate operations to support such retail expansion. Additionally, net loss was also related to professional service costs, including legal, accounting, consulting and audit services, associated with being a publicly-traded company; and sales and marketing expenses primarily related to the development of the MedMen brand, the Company’s retail expansion and to a lesser extent, MedMen’s efforts to mainstream marijuana. Net loss attributable to non-controlling interest for the fiscal year ended June 29, 2019 was $188.8 million, resulting in net loss of $72.5 million attributable to the shareholders of MedMen Enterprises Inc.

Non-GAAP Financial Measures

In addition to providing financial measurements based on GAAP, the Company provides additional financial metrics that are not prepared in accordance with GAAP. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision-making, for planning and forecasting purposes and to evaluate the Company’s financial performance. These non-GAAP financial measures (collectively, the “non-GAAP financial measures”) are:

Management believes that these non-GAAP financial measures assess the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate the Company’s operating results and future prospects in the same manner as management. These non-GAAP financial measures may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company’s ongoing operating results.

As there are no standardized methods of calculating these non-GAAP financial measures, the Company’s methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others. Accordingly, these non-GAAP financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

In particular, the Company continues to make investments in its cannabis properties and management resources to better position the organization to achieve its strategic growth objectives which have resulted in outflows of economic resources. Accordingly, the Company uses these metrics to measure its core financial and operating performance for business planning purposes. In addition, the Company believes investors use both GAAP and non-GAAP measures to assess management’s past and future decisions associated with its priorities and allocation of capital, as well as to analyze how the business operates in, or responds to, swings in economic cycles or to other events that impact the cannabis industry. However, these measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies in the Company’s industry.

Non-GAAP financial measures are financial measures that are not defined under GAAP. The Company uses these non-GAAP financial measures and believes they enhance an investors’ understanding of the Company’s financial and operating performance from period to period. These non-GAAP financial measures exclude certain material non-cash items and certain other adjustments the Company believes are not reflective of its ongoing operations and performance.

These financial measures are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity.

These non-GAAP financial measures have important limitations as analytical tools and should not be considered in isolation or as a substitute for any standardized measure under GAAP. For example, certain of these non-GAAP financial measures:

Other companies in the cannabis industry may calculate these measures differently than the Company does, limiting their usefulness as comparative measures.

Retail Performance

Within the cannabis industry, MedMen is uniquely focused on the retail component of the value chain. For the fiscal year end of 2019, the Company is providing detail with respect to earnings before interest, taxes, depreciation and amortization (“EBITDA”) attributable to the Company’s national retail operations to show how it is leveraging its retail footprint and strategically investing in the future. The table below highlights the Company’s national Retail Adjusted EBITDA Margin (Non-GAAP), which excludes corporate marketing expenses and local cannabis and excise taxes.  Entity-wide Adjusted EBITDA (Non-GAAP) is presented in Item 2 “Reconciliations of Non-GAAP Financial Measures”.

For the fiscal year ended June 29, 2019, system-wide retail revenue was $124.4 million across the Company’s operations in California, Nevada, New York, Arizona, Illinois and Florida, totaling 23 active retail locations. Importantly, the Company’s California retail locations reported a combined $94.6 million in revenue, representing 76% of the Company’s national retail revenue. As the Company is primarily a cannabis retailer, aggregate Retail Gross Margin Rate (Non-GAAP) of 50% is consistent with management’s expectations. Direct store operating expenses include, but are not limited to, rent, utilities, payroll and payroll related expenses, employee benefits, and security, which represents 38% of Retail Revenue (Non-GAAP). Local taxes include cannabis sales and excise taxes imposed by municipalities in which the Company has active retail operations and vary by jurisdiction. As a result, the Company had an aggregate Retail Adjusted EBITDA Margin (Non-GAAP) of $4.3 million for the fiscal year ended June 29, 2019

Reconciliations of Non-GAAP Financial Measures 

The table below reconciles Net Loss (GAAP) to Adjusted Net Loss (Non-GAAP), Net Loss (GAAP) to EBITDA (Non-GAAP) and EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP) for the period indicated. 

For the fiscal year ended June 29, 2019, the Company had an EBITDA Margin Rate (Non-GAAP) of (168)%, calculated as EBITDA (Non-GAAP) divided by consolidated revenue. As consolidated revenue was $130.0 million for the fiscal year ended June 29, 2019, the margin rate is directly impacted by the operative expenditures the Company incurred. The Company more than doubled their retail stores during the fiscal year ended June 29, 2019, from 11 active retail locations as of June 30, 2018 to 23 active retail locations as of June 29, 2019, which produced a negative EBITDA Margin Rate (Non-GAAP) due to the Company’s expansion strategy, resulting in interest and financing costs as a direct result of debt financings, income taxes related to the number of retail locations and cultivation and production facilities operated, and depreciation expense related to leasehold improvements, furniture and fixtures, and equipment and software for the Company’s retail stores, cultivation and production facilities, and overall operations. Considering these adjustments, the Company had EBITDA (Non-GAAP) of $(218.4) million for the year ended June 29, 2019.

For the fiscal year ended June 29, 2019, the Company had an Adjusted EBITDA Margin Rate (Non-GAAP) of (129)%, calculated as Adjusted EBITDA (Non-GAAP) divided by consolidated revenue. The Company incurred $17.0 million in transaction costs and restructuring costs related to the mergers and acquisitions completed during the fiscal year ended June 29, 2019 and the development of the Company’s corporate infrastructure. Additionally, the Company utilizes equity compensation as a tool to attract and retain employees and compensate corporate governance. Considering these adjustments, the Company had Adjusted EBITDA (Non-GAAP) of $(167.1) million for the year ended June 29, 2019. The financial performance of the Company is expected to improve once all newly active retail locations have acclimatized to the geographic market and are fully operational. Refer to Item 2 “Liquidity and Capital Resources�� for further discussion of management’s future outlook and executed strategic plan.

Refer to Item 2 “Retail Performance” above for reconciliations of Retail Adjusted EBITDA.

Cash Flows

Cash Flow from Operating Activities

Net cash used in operating activities was $243.0 million for the fiscal year ended June 29, 2019 in which the net cash used in operating activities was primarily due to the net loss of $261.3 million. Most significantly, general and administrative expenses include corporate-level expenses across various functions including Marketing, Legal, Retail Corporate, Technology, Accounting and Finance, Human Resources and Security which are combined to account for a significant proportion of the Company’s total general and administrative expenses. Additionally, $20.0 million of cash used in operating activities for the fiscal year ended June 29, 2019 was related to other assets which consists of certain long-term deposits and $20.7 million was related to increases in inventory given the number active retail locations. The Company experienced significant growth in active retail store operations during the fiscal year ended June 29, 2019 with the addition of 12 retail locations, which resulted in increased operating cost. The cash used was offset by an increase of $31.6 million in accounts payable and accrued liabilities, $32.5 million in share-based compensation and $25.0 million in depreciation and amortization expense. Liabilities incurred and depreciation and amortization expensed were directly related to the Company’s growth in retail operations.

Cash Flow from Investing Activities

Net cash used in investing activities was $146.5 million for the fiscal year ended June 29, 2019, in which the net cash used in investing activities was primarily due to purchases of property and equipment of $118.4 million, acquisitions of businesses of $26.7 million and cash paid for asset acquisitions of $19.8 million. The amounts used were offset by the proceeds received from the sale of property of $24.1 million.

Cash Flow from Financing Activities

Net cash provided by financing activities was $344.1 million for the fiscal year ended June 29, 2019, in which the net cash provided by financing activities was primarily due to $128.6 million received from the issuance of equity financing instruments, $8.5 million from the exercise of warrants, and $266.2 million from the issuance of notes payable including the credit facility with Gotham Green Partners during the fiscal year ended June 29, 2019. The cash received from financing activities noted above was offset by $55.0 million in principal repayments of notes payable.

Financial Condition

The following table summarizes certain aspects of the Company’s financial condition as of June 29, 2019:

As of June 29, 2019, the Company had $33.8 million of cash and cash equivalents and $3.6 million of working capital deficit. During the fiscal year ended June 29, 2019, the Company had considerable uses of cash in its efforts to expand and develop its supply chain, including substantial purchases of property and equipment. With the Company’s significant investments in its retail expansion, MedMen more than doubled the number of active retail locations for a total of 23 retail stores as of June 29, 2019 compared to 11 active retail stores as of June 30, 2018. In addition, cash spending was also associated with significant payments on notes payable and costs associated with the issuances of debt. The foregoing uses of cash were partially offset by capital provided by sale and leaseback transactions and debt and equity financing during the fiscal year ended June 29, 2019.

Total assets of $693.6 million are primarily related to property and equipment of $243.6 million, intangible assets of $221.6 million and goodwill of $85.6 million, the majority of which is a result of the Company’s business combinations and asset acquisitions. The Company continues to significantly invest in property and equipment in connection with its retail expansion strategy. Total current assets of $106.1 million are primarily related to cash and cash equivalents of $33.8 million, described above, $31.2 million in inventory as it relates to the Company’s number of active retail locations and cultivation and production facilities, and $18.9 million in other current assets which are related to investments and other receivables. Total liabilities of $485.7 million are primarily related total notes payable of $259.6 million given the Company’s debt financing transactions, and total lease liabilities of $16.4 million due to capital leases. Total current liabilities of $109.7 million are primarily related to accounts payable and accrued liabilities of $49.4 million, the current portion of notes payable of $22.0 million, and income taxes payable of $15.6 million. Accordingly, the Company has a working capital deficit of $3.6 million as of June 29, 2019.

The Company’s working capital will be significantly impacted by growth in retail operations, opening new retail locations, increasing cultivation and production activities as well as adding new cultivation and production facilities coming online in the coming year. The ability to fund working capital needs will also be dependent on the Company’s ability to raise additional debt and equity financing. Refer to “Liquidity and Capital Resources” section below.

Liquidity and Capital Resources

The primary need for liquidity is to fund working capital requirements of the business, including operationalizing existing licenses, capital expenditures, debt service and acquisitions. The primary source of liquidity has primarily been private and/or public financing and to a lesser extent by cash generated from sales. The ability to fund operations, to make planned capital expenditures, to execute on the growth/acquisition strategy, to make scheduled debt and rent payments and to repay or refinance indebtedness depends on the Company’s future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond its control. Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.

As of June 29, 2019, the Company had $33.8 million of cash and cash equivalents, $0.1 million of restricted cash and a working capital deficit of $3.6 million. For the fiscal year ended June 29, 2019, the Company’s monthly burn rate, which was calculated as cash spent per month in operating activities, was approximately $20.3 million. Since its inception, the Company has focused on aggressive market expansion efforts in the form of mergers, acquisitions, and management contracts with the understanding that such strategy may result in short-term operating losses. In executing the goal of branded scale, the Company incurred acquisition related debt and costs. However, the Company’s aggressive expansion strategy has been a key driver of its revenue growth. As of June 29, 2019, cash generated from ongoing operations may not be sufficient to fund operations and, in particular, to fund the Company’s growth strategy in the short-term or long-term.

Subsequent to June 29, 2019, management has executed on a strategic plan to position itself properly in current market conditions and as the regulatory environment continues to shift. The Company intends to limit significant cash outlays while maintaining an overall focus on core markets. First, the Company identified markets in which management has deemed non-core to MedMen’s retail footprint. In November 2019, the Company announced its plan to sell its operations in the state of Arizona to focus on deepening its retail market share in its existing states, such as California, Nevada, Illinois, and New York. As a result, during the fiscal second quarter of 2020, operations within the state of Arizona were classified as held for sale and revenues and expenses related to Arizona operations were classified as discontinued operations. Management is actively seeking divestiture of non-core assets which include licenses and investments to provide additional capital. Given the Company’s specialization in retail, management is revaluating strategy and identifying opportunities to realign the Company’s focus on the retail market. Second, the Company has delayed its expansion plan and intends to slowdown in the number of mergers and acquisitions compared to fiscal year 2019. The Company has indefinitely postponed buildouts and retail store expansions to reduce capital expenditures as needed. To further limit cash outlays, the Company is also focusing on the optimization of general and administrative expenses and sales and marketing expenses (collectively, “SG&A expenses”). Key drivers of the Company’s initiative to decrease SG&A expenses include general corporate cost savings, strategic headcount reductions across various departments, and elimination of non-core functions and overhead in various departments. Subsequent to June 29, 2019, management has executed strategic transactions to streamline operations and focus on core markets, and to better position itself for long-term viability.

The Company has also raised additional funds from debt and equity financing subsequent to the fiscal year ended June 29, 2019 to mitigate any potential liquidity risk. The Company intends to continue raising capital by utilizing debt and equity financings on an as needed basis. Management evaluated its financial condition as of June 29, 2019 in conjunction with recent financings and transactions which provide capital subsequent to the fiscal year ended June 29, 2019 as discussed below.

Continued Strategic Partnership with Gotham Green Partners

Subsequent to June 29, 2019 through August 24, 2020, the Company has drawn down on the Facility led by Gotham Green Partners in the aggregate amount of $50,000,000 as follows:

On July 12, 2019, the Company had drawn down $25,000,000 through Tranche 2 of the Facility. In connection with the funding of Tranche 2, the Company issued 2,967,708 and 857,336 warrants to the lenders at an exercise price of $3.16 and $3.65 per share, respectively.

On November 27, 2019, the Company had drawn down $10,000,000 through Tranche 3 of the Facility. In connection with the funding of Tranche 2, the Company issued 3,708,772 and 1,071,421 warrants to the lenders at an exercise price of $1.01 and $1.17 per share, respectively.

On March 27, 2020, the Company had drawn down $12,500,000 through Tranche 4 of the Facility. In connection with the funding of Tranche 4, the Company issued 48,076,923 warrants to the lenders at an exercise price of $0.26 per share.

On April 24, 2020, the Company closed on an incremental advance in the amount of $2,500,000 under the Facility at a conversion price of $0.26. In connection with the incremental advance, the Company issued 9,615,385 warrants with an exercise price of $0.26. In addition, 540,128 existing warrants were cancelled and replaced with 6,490,385 warrants with an exercise price of $0.26.

Subsequent to June 29, 2019, the Company entered into amendments to the Facility with Gotham Green Partners to provide greater flexibility to the Company. Refer to “Note 24 - Subsequent Events” of the Consolidated Financial Statements for the fiscal year ended June 29, 2019 in Item 13.

Secured Term Loan Amendment 

On December 10, 2019, the Company executed a binding term sheet in respect of certain amendments to the definitive agreement for the $77.8 million senior secured term loan (the “October 2018 Loan”) with funds managed by Stable Road Capital and its affiliates (the “Term Loan Lenders”). The Company subsequently announced the execution and closing of definitive documentation on January 14, 2020. Amendments included: