FINAL PROJECT

REPORT.

SUBJECT: STRATEGY (M&A) ANALYSIS-

MEDMEN TO ACQUIRE PH ARMACANN.

BUS-J 401 ADMINISTRATIVE POLICY

Authored by: Sohail Khan.

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 Introduction To The Case

In recent years, mergers and acquisitions have become a trend in order for all types of

businesses, ranging from startups to large-scale giants, expand and diversify their products or services.

The motive for every party involved in a merger or acquisition is the concept of obtaining synergies,

or mutually defined benefits from such a deal. A merger refers to a sort of agreement that combines

two individual companies into a new company in order to achieve greater efficiencies in terms of more

scale and productivity. An acquisition occurs when a company purchases most or all of the shares of

another company in order to obtain control.

The acquisition to be discussed in the final project is MedMen Enterprises planned

acquisition of PharmaCann, valued at approximately $682 million. The deal was to be completed as an

all-stock acquisition which meant that the transaction would be fully paid for through 100% stock

ownership and control of the company being acquired rather than paid in cash (Chester, 2018).

However, a year after the announcement MedMen pulled out of the deal due to changing market

conditions and the extensive time regulators were taking to oversee the intricacies.

External Environment Analysis

Given the conditions of worldwide markets, it is given that most industries, especially those

involved in sensitive or debatable topics such as pharmaceuticals or drugs, experience significant

volatility. Hence the cannabis/hemp industry is facing this volatility due to investor confidence and

regulation issues. According to Jeff Schultz, the chief compliance officer or CCO of Navy Capital,

LLC, a cannabis industry specialty investment firm, most deals in the particular market face from

various shortcomings such as a limited investor pool, Department of Justice and its bureaucracy,

among the major unpredictability of such a specific and sensitive market.

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 ““The cannabis sector has evolved tremendously since we first announced the PharmaCann
transaction and based on the current macro-environment and future opportunities that exist
for our business, we believe it is now in the best interest of our shareholders to deepen,
rather than widen, our company’s reach,” - Adam Bierman, MedMen CEO.

Internal Environment Analysis

Given the nature of the challenges discussed above, it is crucial to analyze the VRIN or

resources-based view of the situation as follows in order to obtain competitive advantage organically:

a) Value: MadMen is considered to be the “Apple Store of cannabis”, as it undertakes an

approximately $2million campaign to advertise its high-end value of its premium products

and the health benefits associated with such high quality (Berke, 2018).

b) Rareness: The cannabis and hemp industry market is growing at a fast rate, and firms are

now more than ever trying to portray their “stand-out” factor. Since MedMen has grown

across the United States, its operations and networks have allowed various Hollywood stars

and hip-hop artists to promote the brand, which is able to offer special prices, product deals

while still maintaining their high quality, for long-term customer retention.

c) Imitability: The industry is still facing issues when it comes to imitability since the

manufacturing of marijuana is at most an easily imitable process. The kind of flower grown

does not have a patent for a company to formulate, hence every company has its own

version of Purple Haze or Girls Scout Cookies version. There is thus ambiguity when it

comes to ensuring top quality strains remain hard to replicate or imitiate.

d) Non-substitutable: The major advantage of the company’s internal environment is that

cannabis itself is not substitutable and those firms such as MedMen which provide high-

quality flowers, possess greater resources and goodwill on the market.

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 Corporate Strategy & Organizational Issues

Corporate strategy is key when it comes to fulfillment of a merger or acquisition deal. Most

often, the reason lies in a lack of synergy, among other major reasons. Indubitably, MedMen’s attempt

to acquire PharmaCann fell across primarily due to the regulatory provisions, further highlighted under

Department of Justice’s antitrust review, which factored against any possible synergy that the two

firms initially planned upon. Such unexpected scrutiny cast a shadow over cannabis company stock

prices in recent months and even threatened the eventual closing of such transactions (Thomas, 2019).

Thus corporate strategy did not align with the macro or micro elements surrounding MedMen

and this led to a realization that certain assets of PharmaCann required significant expenditures

(Owram, 2019). Had the company realized this while evaluating its corporate strategy, its stock price

would not have faced the 9% fall, and this is becoming more common in failure of deals closures that

due diligence is not being correctly performed. Not only that, MedMen also had to undergo a change

in leadership and management as part of its corporate strategy. The company appointed Zeeshan

Hyder as its new Chief Financial Officer (CFO) so that the company strategy remains more focused on

organic growth deeper into its existing operations rather than seeking growth through inorganic

acquisitions.

Moreover, the firm had been in the news regarding the excessive and unneeded corporate

expenditure that it was occurring in recent years. Together, all of these reasons affected MedMen’s

business strategy, overall business design and future prospects of acquisition deals. Thus it is now

focusing on internally improving its overall retail expansion, particularly across the West Coast. It

could be implied that given the cannabis industry today, the federal oversight into the industry, along

with the volatile market and policy making regulations, strategic deals in the sector are facing a

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downturn, which is making it difficult for firms to collide and improve their corporate strategy and

thus, industry performance.

Alternative Solutions and its Pros/Cons:

As the case analyzes the problems and the current time period, it is also important to consider

the future outlook of the industry. Given its volatile and dynamic nature, the cannabis industry is most

unlikely to benefit from just one solution (Clark, 2019). Rather, an amalgamation of different coping

mechanisms are likely to solve the upcoming issues. Property rights and copyright protection is key in

order for all kinds of brands to research, develop and issue new affordable, and safer consumption.

The legal system of countries play an important role with this regard. The United States especially

needs to combat its battle between the individual states, which are pressing for legalization, versus the

federal government, which prohibits usage, to come up with a better solution that allows open and free

trade in the market.

There should be greater joint ventures or collaborative effort between governments and private

companies so that loses are offset, and the tax revenue could be used to spread better awareness.

Doing so would also ensure that awareness regarding using hazardous fake drugs could do to low-

income consumers, and efforts can be made to ensure that the price difference is close to none so that

the actual product is purchased in the global market. The dark web is a very disastrous and negative

tool of the internet, which facilitates the widespread supply of such products. This would in turn affect

children or people who should not be using the product. Thus, if governments across the world work

together on taking down such websites permanently that would benefit consumers worldwide and

create a more collaborative network which provides a win-win for companies, governments and

consumers alike.

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 Appendix: Annotated Bibliography

Berke, Jeremy. (2018, October 11). High-end marijuana retailer MedMen just spent $682
million on the largest US cannabis acquisition in history. Retrieved from
https://www.businessinsider.in/science/high-end-marijuana-retailer-medmen-just-spent-682-
million-on-the-largest-us-cannabis-acquisition-in-history/articleshow/66167970.cms

Clark, Dan. (2019, November 25). General Counsel Share Why Cannabis M&A Deals Are
Having Trouble. Retrieved from https://www.law.com/corpcounsel/2019/11/25/general-
counsel-share-why-cannabis-ma-deals-are-having-trouble/?slreturn=20191027135902

Chester, Briana. (2018, December 24). MedMen Signs Definitive Agreement for the Acquisition
of PharmaCann. Retrieved from
https://www.businesswire.com/news/home/20181224005023/en/MedMen-Signs-Definitive-
Agreement-Acquisition-PharmaCann

Owram, Kristine. (2019, October 08). Pot Stock Weakness Scuttles MedMen’s Acquisition of
PharmaCann. Retrieved from https://www.bloomberg.com/news/articles/2019-10-08/pot-
stock-weakness-scuttles-medmen-s-acquisition-of-pharmacann

Thomas, Nick. (2019, October 08). MedMen and PharmaCann terminate $682 million
cannabis merger; MedMen CFO ousted. Retrieved from https://mjbizdaily.com/medmen-and-
pharmacann-terminate-682-million-cannabis-merger-medmen-cfo-ousted/