Regulatory Framework

I am resident in the United States. How can I invest in a cannabis company if federally illegal in the United States?

While cannabis is not yet legal at the federal level, 33 states have enacted medical cannabis programs, and 10 states have legalized adult use cannabis, with many more working in that direction. MedMen is a Canadian corporation. MedMen’s Class B Subordinate Voting Shares trade publicly on the Canadian Securities Exchange under the ticker MMEN, on the OTCQX under the ticker MMNFF, and on the Frankfurt Exchange under the ticker A2JM6N.

While the U.S. federal government has, to date, largely not interfered with state level medical and/or adult use programs, we anticipate that in the not too distant future states will be provided formal protection to pursue such programs. Ultimately, we believe cannabis will be legalized federally. This progression of public policy following public opinion regarding cannabis is expected to lead to more and larger pools of capital becoming attracted to the industry, and key players such as MedMen.

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Are you able to use banks in the United States for your operations?

The Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) guidance provides the framework for banks to be able to accept regulated cannabis companies as clients. We are fully banked in every state in which we operate.

Over 70% of the sales in our stores are paid for by debit cards, with the remainder paid in cash. Over time we anticipate being able to accept credit cards, which would further reduce the need to use cash and likely provide an additional boost to sales.

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What is 280E? How does it affect you, and when might it go away?

Section 280E of the U.S. Tax Code, effectively prohibits those selling Schedule 1 substances (including cannabis) from deducting expenses other than direct cost of goods sold for income tax purposes, resulting in them facing punitive effective tax rates. There have been many proposals which would result in state legal cannabis companies no longer being subject to 280E. We are optimistic that 280E, which overhangs the entire industry, will be revised in the not too distant future.

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Operational Footprint

How do you determine what markets you choose to enter?

We prioritize markets that are important for building a national retail brand. We look for jurisdictions with regulated oligopoly characteristics, marked by limited licenses, – which collectively allows us to generate outsized returns. The market opportunity is naturally larger in areas where adult use is legal, or in medical states where there is a path to adult use.

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What is your current footprint and what was the rationale behind how it developed?

As we began our journey years ago, we were confronted with the question “how do you create a brand in an industry that does not yet exist?” We concluded that the best way to do so was to focus on Los Angeles, Las Vegas and New York – the three cities which we believe play the largest role in building brands and where pop culture trends usually start and them emanate throughout the country, and the world.

Our approach has always been focused growth. We had already established a dominant position in the three aforementioned cities when we went public in May 2018. In June 2018, we acquired one of the 14 master licenses in Florida which allows us to open 35 stores across the state. We then looked to add operations in other key markets. Within six months with announced acquisitions our footprint had expanded to span 12 states, covering the majority of the population of the U.S.

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International

What is your international strategy?

Our goal is to be a global cannabis retailer. While we review opportunities global expansion opportunities, we have focused our growth domestically given the potential $80B cannabis market in the U.S.

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Market Dynamics

How big can the U.S. market be?

We are still in the very early innings of this journey. Retail sales in the U.S. are forecast by Cowen to reach US$80B in 2030. We believe that as seen in many similar industries, a handful of companies will dominate the bulk of this amount – and with our current positioning, team and infrastructure, we will continue to be one of the leaders in this sector going forward.

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Don’t prices fall when legalized?

Not in all jurisdictions. It depends on the number of licenses issued in comparison to the ultimate demand. While the early ‘free market’ states did see prices fall as a result of granting too many licenses, we have not seen this to be the case in the markets we have targeted, such as Los Angeles, Nevada, New York, Florida and Illinois.

In jurisdictions where prices have fallen, we have largely seen wholesale prices fall significantly more than retail prices, allowing retailers to capture more margin. Accordingly, being a retailer at our core, if the prices of third party products that we sell fall while our selling prices do not, we could stand to benefit from such a phenomenon.

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What are the prospects for your business when interstate commerce is allowed?

We believe there are significant hurdles for interstate commerce within the cannabis industry. Almost a century after the end of prohibition, the alcohol industry is still very much controlled at the state level. Unlike alcohol, when cannabis is ultimately legalized at the federal level (which is different than granting states protection from federal intervention), there will be multiple billion-dollar state industries, and associated jobs and tax dollars that states would like to protect. However, if it were to be allowed one day, as a leading retailer, we believe we would stand to benefit from having wider possibilities for supply.

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Competitive Landscape

Who are your main competitors?

Our biggest competitor as an industry is the illicit market. This transition from the illicit market to the regulated market is occurring at different rates in different jurisdictions, but the trend is clear. We believe the overwhelming majority of cannabis consumers prefer consuming product that is legal and tested to be free of pesticides and other toxins. Unlike other high growth industries, there is already a massive market of people are already using cannabis. That said, just as importantly, the size of the pie itself is growing. New consumers are flocking to the industry.

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What is your competitive positioning in key markets?

As the most populous state and the fifth-largest economy in the world, California is the crown jewel of the cannabis market. We have demonstrated a clear leadership in the largest marijuana market in the world. Based on the excise tax data released by the California Department of Tax and Fee Administration1, with eight stores open during the quarter ended December 2018, MedMen represented 7% of the legal retail sales across the entire state. Given the extremely fragmented nature of the California market, we believe this makes us by far the largest brand in the most sophisticated cannabis market – and we’re not stopping here. We have set a target to have 25+ stores in California over the next three years.

Our competitive position in other emerging markets is also enviable. We have three stores open in Nevada – no other company currently has more. In New York, there are only 10 license holders for the entire state – we own one and have a definitive agreement to acquire a second one. In Florida, we are one of just 14 license holders in the state. In Illinois, with announced acquisitions, we will have five dispensaries in a state with only 55. To be clear, cannabis is an emerging and very fragmented industry – as opposed to a competitive environment where less than a handful firms compete head to head in the same markets, such as McDonald’s vs. Burger King.

1 Source: https://cannabis.ca.gov/2019/02/19/california-department-of-tax-and-fee-administration-reports-cannabis-tax-revenues-for-fourth-quarter-of-2018/

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Corporate Structure

How was the company set up originally?

Historically, as access to capital was difficult to come by, we created special purpose vehicles where investors pooled funds to make specific cannabis investments. This graduated towards a fund model where we created two private equity funds raising funds from investors to acquire a portfolio of assets, offering more scale and diversification. In January 2018, substantially all of the assets held by these entities were contributed into a holding company,, MedMen Enterprises Inc., which went public in May 2018 on the CSE.

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What share classes do you have?

MedMen has two classes of shares outstanding. Our Class B Subordinate Voting shares trade publicly and provide one vote per share at shareholder meetings. We also have 1.6MM Super Voting shares that provide the holders with 1,000 votes per share at shareholder meetings. The only holders of the Super Voting shares are our Founders, Adam Bierman and Andrew Modlin.

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What are the redeemable shares you have outstanding?

As part of a reorganization immediately prior to the go public process, the securityholders of MM Enterprises USA, LLC were issued redeemable shares of our current subsidiary MM CAN USA, Inc., which acquired the voting interests in MM Enterprises USA, LLC. This was driven primarily by taxation considerations. These redeemable shares are exchangeable on a 1:1 basis for Class B Subordinate Voting Shares for no additional consideration. Accordingly, there is a meaningful difference between the shares outstanding and our effective share count for the purposes of calculating our market cap. We expect that, over time, and driven by the particular situation of each holder, the redeemable shares will be exchanged for publicly tradable shares.

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Retail

What is the focus of your operations?

First and foremost, we are a cannabis retailer. Retail is where we have the relationship with the end customer and where we believe the most long-term value will be created. Every decision we make as a company is based around strengthening our retail brand and growing our retail footprint in key markets. Whether it’s rolling-out our own products to increase customer loyalty, or building cultivation and production facilities to enhance margins, these are all designed to support retail.

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Why do you focus on retail?

While a recent Gallup poll found that two-thirds of Americans want access to legal cannabis, it is also one of the most NIMBY industries in the country which has resulted in the implementation of incredibly arduous zoning restrictions – such as minimum distances from a school, church, park or other dispensary. Accordingly, being able to lock up key real estate early offers retailers a moat of defensibility that companies in other areas of the value chain don’t have.

Given the limited number of retail licenses available in many of the larger markets, there is a significant first mover advantage and outsized economics available to those that are able to obtain these licenses.

Large national product brands don’t exist in cannabis. Given the state-level nature of the industry and a growing macro trend towards locally sourced products, it will be quite some time until cannabis product brands exist with a strong level of brand equity. National retailers such as Whole Foods, Nordstrom and Costco are successful because they can constantly adapt to changing consumer needs. Similarly, MedMen is the most recognized name in cannabis, attracting consumers into our store for excellent service and education as to what might best fit the experience they seek.

Unlike alcohol where there are three tier laws preventing retailers from putting their own brands on the shelf, there are no such restrictions on cannabis. As a result, it is the retailers which control access to shelf space and thus have more power in shaping what brands emerge in cannabis.

1 Source: https://news.gallup.com/poll/243908/two-three-americans-support-legalizing-marijuana.aspx

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Key Financial Metrics

What revenue are you targeting per store?

Our target is for our adult use stores to each achieve a run rate of US$20MM in annual revenue, with an average spend per customer of US$80.

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What are your four wall economics?

Our target is for our adult use stores to each achieve a run rate of US$20MM in annual revenue, with an average spend per customer of US$80. We target 55% gross margins and 30% EBITDA margins for our mature stores in recreational markets.

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When do you expect to be cash flow positive?

Due to licensing and real estate timing, cash generation lags cash outflow, but upfront investment is paramount to be the market leader in our industry at this phase of the game. We are making investments in our team, infrastructure and brand in a prudent fashion to best position us to win the ultimate prize – the expected US$80B U.S. cannabis market.

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Brands

What is your principal objective in launching your own cannabis brands?

The principal objective of launching our own in-house brands is to capture the extra margin on those sales, enhancing four wall economics and furthering customer loyalty. Our longer-term goal is to have approximately half our sales arising from brands that we wholly own, while still selling other popular third party brands – similar to the strategy taken by other hugely successful retailers such as Costco and Whole Foods, or the exclusive content offered by Netflix.

In October 2018, we launched [statemade], our first line of cannabis products in Nevada, consisting of four product types (vape pens, drops, flower and pre-rolls) conveniently classified by seven desired effects – from “max” to “zzz”. Since launching [statemade], we’ve also launched a second house brand called MedMen Red.

We plan on having some upside from selling brands we don’t wholly-own as well. We will look to invest in leading companies within their respective category, providing them with access to growth capital and a strategic partner which can help them scale nationally. We have already announced two such transactions – Lowell Smokes and Old Pal – which we are already selling on our shelves.

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Treehouse

What was the rationale for Treehouse?

Even though we’ve acquired or developed over US$100 million worth of real estate, our intention was never to be long-term owners or developers of real estate. That is not our core business, but we needed to become real estate experts in order to execute our vision, particularly years ago when it would have been impossible for a cannabis company to access Tier 1 real estate.

Treehouse Real Estate Investment Trust, Inc. is a new real estate vehicle incubated by MedMen and Stable Road Capital, a Venice, California-based investment firm with successful track records in real estate and cannabis. Treehouse is governed by an independent board.

Selling real estate into Treehouse allowed MedMen to unlock value for shareholders by strengthening our balance sheet and reducing the capital needs on a go-forward basis. It also provided a pure play separate real estate vehicle for investors to participate in the opportunity in that market. Treehouse intends to also have other tenants (representing 50% of its portfolio in the long-term), allowing it some diversification while still having MedMen as its anchor tenant.

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How much has Treehouse raised?

In January 2019, Treehouse disclosed that it raised US$133.5MM in an equity financing.

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What real estate has MedMen sold to Treehouse?

We have entered into LOIs to sell Treehouse nine properties to Treehouse and lease them back. The aggregate value of these properties is ~US$100MM and it will free up over US$50MM of cash after paying down related debt.

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How will Treehouse help MedMen’s financial situation in the future?

We anticipate that Treehouse will acquire and develop future retail locations and cultivation and production facilities and that we will lease such facilities from Treehouse. Over time, this will allow us to substantially reduce our capex load. Specifically, based on our growth plans with respect to existing and future assets, we expect to reduce MedMen’s total capital needs by up to US$150 million over the next 2 years through the partnership with Treehouse (vs prior anticipated capital budgeting).

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How did you arrive at the price to be paid for the properties MedMen will sell to Treehouse?

Each of Treehouse and MedMen have an independent investment committee which approves all transactions. This will ensure that all sales and leases are approved by both sides and in the best interests of both groups of stakeholders.

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Does MedMen own any of Treehouse?

No, MedMen does not currently own any Treehouse equity. It will receive a standard management fee for managing Treehouse assets until management is internalized.

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Miscellaneous

When did MedMen go public?

MedMen became a publicly traded company through a reverse takeover, or RTO, on May 29th, 2018.

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What exchange does the stock trade on and what is the stock symbol?

Our stock trades on the Canadian Securities Exchange under the ticker symbol “MMEN”, on the OTC Market under the ticker symbol “MMNFF” and on the Frankfurt Stock Exchange under the ticker “FSE: A2JM6N”.

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How can I buy the stock?

Our stock can be purchased by contacting a registered stock broker or through an online stock brokerage service for self-directed investors.

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Can non-Canadian residents invest in the stock?

Yes, non-Canadian residents can invest in MMEN. Please consult your broker to determine whether they are able to execute on your behalf on the Canadian Securities Exchange.

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Can I purchase stock directly from the Company?

No, but MedMen stock can be purchased through a brokerage firm, including online brokerage services.

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Does MedMen issue dividends?

No. We do not expect to pay any dividends on our common stock in the foreseeable future.

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What is MedMen’s cusip?

The cusip for MMEN is 58507M107.

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Who is MedMen’s transfer agent?

Odyssey Trust Company
United Kingdom Building
835 – 409 Granville Street
Vancouver, BC V6C 1T2

Phone: 1 (778) 819-1184
Email: info@odysseytrust.com
Website: www.odysseytrust.com

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Who can I contact regarding shareholder account-related questions, such as address changes or transfer of ownership?

Shareholders with inquiries about their holdings, such as share count, address corrections or changes in registered share ownership, should contact our stock transfer agent.

Odyssey Trust Company
United Kingdom Building
835 – 409 Granville Street
Vancouver, BC V6C 1T2

Phone: 1 (778) 819-1184
Email: info@odysseytrust.com
Website: www.odysseytrust.com

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What is MedMen’s fiscal year?

Our fiscal year ends June 30th.

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Who are the company’s independent auditors?

MedMen's independent registered public accounting firm is MNP LLC.

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How do I contact Investor Relations for additional information?

You can contact MedMen Investor Relations with questions related to our stock:

Investors@medmen.com
(855) 292-8399

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Where can I get a copy of materials filed with the Canadian Securities Administrators (CSA)?

Our public securities filings are available on www.sedar.com.

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How can I sign up for email alerts from MedMen for investor materials?

Please submit your e-mail address on the “Email Alerts” page of this website.

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Does MedMen provide franchise opportunities?

No, MedMen is not accepting applications for franchisees at this time.

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