They used to be drug dealers. Then they became dispensaries. Now we have cannabis retailers that "seek to replicate the Apple store model" and give customers "a comfortable, informative and nonthreatening environment."
That's how Culver City firm MedMen describes its pot shops in documents submitted as part of the company's most audacious plan yet: to become the nation's most valuable public cannabis company, worth more than $1 billion.
It's a move that, perhaps even more than MedMen's sleek stores on Santa Monica Boulevard and New York's Fifth Avenue, illustrates how quickly cannabis is entering the mainstream — and how the nascent industry has captured investors' attention even as it remains relegated to the fringes of the financial world.
MedMen, which has yet to post a profit, is not staging a traditional initial public offering. Instead, it's acquiring and taking over an existing public shell. What's more, the company's shares, when they begin trading in the coming days, won't be listed on the Nasdaq or the New York Stock Exchange.
Instead, they'll be on the Canadian Securities Exchange, a second-tier stock market in Toronto that's become a haven for cannabis companies.
Adam Bierman, MedMen's co-founder and chief executive, said going public this way makes sense in the cannabis industry, where companies face a tangle of conflicting regulations but see immense opportunity requiring fast money.
"And how do I get that today, with the way the world is set up?" he said. "I get it by being public on the CSE in Canada."
Despite being legal for medicinal or adult use in most U.S. states, cannabis remains illegal under federal law. Because of that prohibition, the major U.S. stock exchanges will not list cannabis firms that operate in the U.S. The Toronto Stock Exchange, Canada's top trading venue, has a similar stance.
But the Canadian Securities Exchange, following guidance from that country's securities regulators, said last year that it was willing to list such firms. The exchange is already home to several Canadian companies that have U.S. operations, and MedMen will become just the second U.S.-based cannabis company to list. New York cannabis investment firm iAnthus Capital went public on the CSE in 2016.
Many more companies will soon follow, said Dan Nicholls, a director at cannabis advisory firm Ello in Century City. He expects dozens of U.S. cannabis firms to go public in Canada this year alone.
"It's going to be a massive rush," he said. "You might see 100 new companies go public on the CSE. Everyone is looking at Canada."
Chicago cannabis grower and retailer Green Thumb Industries recently announced plans for a reverse merger with a defunct Canadian uranium mining firm. New York cannabis investment firm Acreage Holdings, which recently added former House Speaker John Boehner and former Massachusetts Gov. William Weld to its advisory board, also plans to go public, Weld told Fox Business Network last month.
Companies are flocking north because they see the Canadian stock market as a source of cheap and abundant capital, something that entrepreneurs have long complained is not available in the cannabis industry.
Firms that grow and sell pot can't borrow money from banks or raise capital from most institutional investors, which shun the industry because it remains federally illegal. That's left companies to rely on hedge funds or wealthy individuals willing to invest, and Nicholls said there simply aren't enough of those.
"A lot of investors get scared off, especially larger investors putting millions of dollars at work," he said.
But in Canada, some big institutional investors are investing in cannabis firms, and there's no shortage of small-time investors who want in, too. They're willing to pay premiums that other investors haven't been.
So by going public, companies can raise more cash while company founders give up less ownership and less control, said Mark Hiraide, a Los Angeles attorney who specializes in capital transactions and is working with another cannabis firm seeking to go public in Canada.
"The money is cheaper in the public markets," he said. "You've seen public company multiples in Canada over the last few quarters … that have been quite lofty."
Take Canopy Growth Corp., a Canadian cannabis company that through a quirk in the law listed its shares on the New York Stock Exchange this week. (The move is allowed because the company operates only in Canada, where cannabis is federally legal.) That company is valued at more than $7 billion, despite never reporting a profit and having sales last year of just $54 million.
MedMen's Bierman said going public in Canada was the best option for his company to raise money while giving away as little equity as possible.
As part of its deal to go public, MedMen is selling about $100 million worth of new shares, which will give investors a roughly 6% stake in the company. That deal values the company at around $1.6 billion. That's 60% richer than just two months ago, when the company raised money from a Canadian investment firm at a valuation of $1 billion.
Either valuation represents a big bet on the future of MedMen, which owns or operates a dozen cannabis shops in California, New York and Nevada, as well as growing operations to feed those stores.
From mid 2016 through the end of last year, the company reported total sales of $6 million. In that same 18-month period, it reported a net loss of $31 million.
Analysts note that despite the spread of cannabis legalization and the seeming legitimacy that comes with publicly listed companies, investing in MedMen or any young company is risky.
"In most industries, companies have a few years of track record," said Jesse Pytlak, an analyst at Canadian investment firm Cormark Securities. "Here, you have a lot of businesses still in the business-plan stage. None of these companies have had to prove how great they are."
Bierman, though, bristles at the notion that the cannabis equity market is overheated or that investors are being overly optimistic about the industry. Compare cannabis firms to some tech companies, he said, and it's not clear why tech is a better bet — despite huge valuations for companies in that industry.
"You have a tech company saying 'I have millions of users; we don't know how to monetize that yet,'" he said. "It's not like we're saying, 'Let's hope people buy weed.' People are buying billions of dollars of weed right now, most of it illicit. What we're saying is, if you provide people a safe, clean environment, where there isn't a threat of jail, I bet they'll buy more. That's not much of a leap."
With its new capital, MedMen will continue to buy and build out retail stores in L.A., New York and other top retail markets. Bierman said raising capital now, and doing so as quickly as possible, will help MedMen lock in top retail locations and win loyal customers, two keys to the company's long-term viability.
MedMen is one of the country's larger cannabis chains, though not the largest. It's also not the first to go for a higher-end look. Colorado chain Native Roots has a skate-shop look at some of its 20 locations; Blüm, which runs seven stores in California and Nevada, has shops that could double as sleek bank branches.
But Bierman said MedMen's competitive advantage is less about its look than about its locations. Santa Monica Boulevard in West Hollywood is the hip city's main drag; there's an outlet on Robertson Boulevard in Beverly Hills; and the Fifth Avenue shop is across the street from the New York flagship of Lord & Taylor. It is working to open a shop on the Las Vegas Strip. And Bierman wants more shops in similarly high-profile locations.
"How do you become the trusted brand in the hearts and minds of the marijuana users of tomorrow? You do it on Fifth Avenue, you do it in Beverly Hills, you do it in the markets we're in," he said. " That's why you don't see us distracted by Denver, Colo.; Albuquerque, N.M.; or Bangor, Maine."
And because cannabis shops must generally follow rules that restrict how close they can be to schools, churches, parks or, in some cases, other cannabis shops, he said staking out prime locations now is vital.
That was one of the reasons MedMen chose to go public through a reverse takeover, which he said was three months faster than a traditional public offering would have been.
"It's land-grab time," Bierman said. "The [reverse takeover] probably saved me 90 days. As crazy as it sounds to the outside world, 90 days in my world is like 5 years. In 90 days I can open three more stores, buy an extra license in a new market — I can do a lot."
It's more than a real-estate play, though. Bierman said the overarching goal is to drive sales by de-stigmatizing cannabis. That starts with MedMen's marketing. In one recent campaign, called "forget stoner," posters show photos of cannabis users identified as a teacher, an entrepreneur or a grandmother. Underneath each one is the word "stoner," crossed out.
The stores, too, are designed to make buying cannabis feel safe, comfortable and normal, he said during an interview at MedMen's downtown Los Angeles store, at 8th Street and Broadway.
The store is airy, well lit and well staffed. About a dozen MedMen employees were roaming the sales floor, talking to customers or ringing up purchases. Ten more were downstairs for a training session.
Most products aren't locked up — huge tubs of cannabis flower are one notable exception — and cashiers work behind a counter, not behind a bulletproof screen.
Outside of the store, Bierman pointed to a younger, clean-cut white guy who had just left and was holding a red MedMen-branded bag.
"See that? That's what we're going for," he said. "That could be a Tiffany bag. This store made him feel like holding that bag is OK."