MedMen Facing Lawsuit from Former CFO

MedMen Enterprises Inc (CSE:MMEN), known for its popular Apple-like marijuana retail stores, is facing some big accusations from its former CFO. Normally, it’s bad news if a company’s CFO abruptly leaves the company. When the CFO actually goes to sue, which is what James Parker is doing, that’s going to send alarm bells off everywhere.

In a report out of the New York Daily News, the allegations range from being discriminatory, using racial and homophobic slurs, to outright criminal with the suggestion that bank and financial fraud took place. Parker places CEO Adam Bierman in his cross-hairs, saying that MedMen was being used as a “piggy bank” for the top executive.

If anyone’s credible when it comes to asserting whether spending has been wasteful or not, it’s a company’s CFO. And some of the allegations in the lawsuit are pretty significant. Private jets, luxury hotels, extravagant conference rooms and a custom Tesla costing $160,000 are just some of the items cited as examples of the reckless spending that has taken place.

Daniel Yi, spokesman for MedMen, has been dismissive of the allegations, stating that “They are patently false. They were made by a disgruntled employee and are untrue.”

Why this matters

Since the start of the month, MedMen’s stock has declined by more than 17% and depending on how things play out from these issues, it could go down even further. Bad press is not something that investors take lightly. And when it comes to the possibility of a CEO using a company’s money as a slush fund, that’s definitely going to raise concerns. While MedMen will try to dismiss the allegations, there are some pretty serious and specific allegations that have been made that could do serious harm to the company’s image.

MedMen is already bleeding through a lot of cash and has been posting some big losses, and so the idea of spending being less than optimal is not a big stretch. If the company had been profitable and doing well financially, it’d be a lot easier to believe that the allegations were baseless. But when a company’s operating loss is larger than its sales number, that’s a cause for concern.

One of the reasons investors need to be extra careful when reviewing marijuana stocks is that many companies are incurring a lot of expenses and blaming it on growth and on the promise of future sales down the road. But the problem is a lot of that information is muddied and near impossible for investors to decipher which expenses are sensible and which ones are just wasteful or reckless.

Where to go from here?

Ultimately, this is just a lot of back-and-forth between the two parties. We don’t know which side is right and that’s what makes it risky for investors. This issue will likely loom over MedMen until it gets resolved. While it may fade away in the background for a while, it’s something that if it’s revealed to be true, could have a disastrous impact on the stock. Investors will want to keep a close eye on this issue going.