No Apologies

Adam Bierman has transformed MedMen into a marijuana industry powerhouse — despite ruffling feathers along the way

by Omar Sacirbey

On a recent June afternoon, MedMen CEO Adam Bierman fielded questions from 47 deep-pocketed investors seated at white-cloth tables inside Manhattan’s swank 21 Club.

His goal: raise money for a new $250 million cannabis investment fund MedMen launched on June 15.

During the luncheon, Bierman laid out the firm’s vision of acquiring or making investments in undervalued medical marijuana businesses in markets with many patients – but a limited number of licenses – in order to gain an early mover advantage. Bierman and MedMen expect those deals will generate a minimum annual return of 30%. Among the investors – representing wealthy individuals, family offices and institutional firms – a dozen liked what they heard. They began the process of investing in the fund, a procedure that involves signing nondisclosure agreements, receiving prospectuses and other steps.

The scene shows just how far Bierman has come in the marijuana industry since he and a partner scraped together $13,000 to launch a medical marijuana dispensary in a seaside California town in 2010. A couple of years later, Bierman and Andrew Modlin officially founded MedMen as a consultancy and then built it into a well-capitalized, talent-stacked marijuana business management firm that today owns or has stakes in seven MJ companies in three states and Canada. In 2016, MedMen launched its first private equity fund, which closed to new investors in April after raising $60 million.

How has Bierman – together with Modlin – done it?

  • He’s been a master of reinvention, willing to change plans and business models at the drop of a hat to seize an opportunity.
  • He implemented a savvy hiring strategy, filling MedMen with talent from established mainstream companies such as BlackRock, Capitol Music Group, the Los Angeles Times and Monsanto.
  • He donates to the Marijuana Policy Project 1% of the money MedMen receives from fund investors, making him a major financial backer of pro-legalization efforts; that has earned Bierman new legitimacy and powerful friends.
  • He’s overcome a brash, controversial style that has offended some marijuana business veterans who label him as a greedy, hype-over-substance opportunist who doesn’t respect them or the plant.

The 35-year-old Bierman, a businessman first and foremost, has no regrets.

“I’m great at making deals,” he told Marijuana Business Magazine. “I’m never going to pretend that this has been my special plant for 30 years. When I got into this industry, I didn’t smoke weed. So I’m not going to pretend. The one thing I’m not is inauthentic.”

Think of Cannabis Like Alcohol

Bierman’s first exposure to the cannabis industry was in 2009 when a small California dispensary hired his marketing firm, ModMen, to perform some work. Bierman’s learned a lesson from that gig: The owner did not have a lot of “business acumen” but was still raking in money.

Bierman figured he and Modlin – now MedMen’s chief operating officer – could make a killing by competing against such businesses.

“We felt very confident that there were not a lot of competent, business-minded strategic thinking operator-owners,” Bierman said.

With his first batch of MMJ provided on consignment and $13,000 that went toward rent, display cases, a cash register and some other retail necessities, Bierman and Modlin in 2010 opened The Treehouse, a dispensary in the coastal California town of Marina del Rey.

“What we learned really quickly was that the clearest path to success in this industry is to pretend that you’re not dealing with pot,” Bierman said.

Instead, think of it more like casinos or alcohol. For example, while many medical marijuana dispensaries did not charge sales tax, The Treehouse did.

“People were like, ‘No, you don’t charge patients sales tax.’ We said, ‘No, we’re not going to eat the sales tax,’” Bierman said.

Comparing marijuana to alcohol and gambling didn’t win Bierman many friends in the cannabis industry.

“It’s not lost on me and it definitely doesn’t feel good, but I know that mentality has caught some flak with legacy participants,” Bierman said. “But we didn’t back down. We didn’t apologize.”

Yet Bierman has sought to mend fences.

“Nobody respects the game more than us,” he said, pointing to the hundreds of thousands of dollars MedMen has contributed to marijuana advocacy groups. “But you have to acknowledge the full extent of the game, and the game is making money.”

The Management Model Moment

After launching The Treehouse, Bierman and Modlin quickly expanded. They developed a network of growers, learned about the industry and, within three years, were running four dispensaries and two cultivation sites. Then, in 2013, Bierman received phone calls from entrepreneurs interested in starting marijuana businesses in Massachusetts, where the regulatory model imposed a license cap. The entrepreneurs asked Bierman if MedMen would be interested in operating the businesses.

While Bierman didn’t accept the offers, he believed the phone calls revealed a greater opportunity that was about to emerge – one that underpins a key piece of MedMen’s business model.

“Our thesis was that Massachusetts was going to create a merit-based oligopoly, and that would mean that small marijuana was in jeopardy,” he said.

Bierman theorized that states that legalized medical cannabis in the future would follow Massachusetts, implementing license caps. Furthermore, those license winners would need operators with experience running marijuana businesses in other states. The best way to take advantage of such a situation would be to create a management company that would target states with license caps.

“That was the big bet,” Bierman said. “We understood what our path would be, and we went all in and did it.”

That triggered a big change in tack. In 2013, Bierman and Modlin shuttered and sold all their MMJ businesses because they were in California’s pre-regulatory gray market. The lack of legal legitimacy would have made it difficult if not impossible to land clients for the management company that Bierman wanted to build.

Launching MedMen

Bierman and Modlin first conceived of MedMen in 2010 and filed the legal paperwork for the business in 2012. They spent the next couple of years hiring personnel who worked on creating standard operating procedures, company software and other key infrastructure for the new MedMen. In particular, the pair recruited software engineers, facilities design specialists, cultivators, extraction specialists, lawyers and accountants.

It was putting the cart before the horse, Bierman admitted, but the goal was to have his team built and to have things like the company’s internal software and SOPs written and tested by the time MedMen pursued its first deals.

“We’ve got to refine this so when we get our first contract, we can go execute,” Bierman said. “We were right about the fact that we needed to build the infrastructure first. The best thing that we did was be patient.”

The ‘Blessing’ of Nearly Going Broke

But hiring strategic staff away from major companies required premiums, and after a couple of years the money started running out.

“The only thing that we didn’t plan for was going broke,” Bierman said. That, however, “was an unplanned blessing in disguise.”

Knowing they were a few months away from running out of money, Bierman and Modlin sought third-party capital. The search would help create the important second leg of their business model, a private equity fund.

“That was something I had never done in my life before,” Bierman said.

In 2013, with enough capital to survive a couple more months, a family office in Florida contacted Bierman. It was seeking a medical marijuana license in Illinois and was interested in having MedMen manage the business if the family office landed the license. But after the meeting, the family office decided that, rather than apply for the license, it should invest in MedMen’s management company.

Bierman said he’d think about it and promptly called Chief Strategy Officer Chris Ganan to ask how to get the deal done. The Florida family office invested $3 million and gave MedMen up to two years of “runway” to finish building the management company.

That first capital infusion and those that followed rescued MedMen and ultimately allowed it to gain management contracts and show clients and investors projects the firm had run successfully.

But the deals had drawbacks: They required an “onerous” amount of oversight that interfered with running the business, in Bierman’s view.

“The first few times I brought in outside capital, with my back up against the wall, I didn’t look at the terms, or ask if the partner is going to be supportive,” Bierman explained. “Even as I succeeded, I didn’t feel good about some of those deals because there were just too many hooks and too many levers. But at the end of the day, if you’re a CEO, and you bring in outside investors, in some way or shape you work for them now. And as an owner, that’s a hard concept. People who are entrepreneurial don’t like to work for other people.”

Still, he doesn’t think about doing anything differently. Consider that Florida deal.

“It’s easy to look back from a stable situation like now and say, ‘I should have done this. I should have done that.’ We did what we had to do,” Bierman said.

Since then, Bierman bought that investor’s stake and assembled a group of investors more to his liking.

Are We Having Fund Yet?

Ganan is a big reason the company launched its first private equity fund in 2016. Ganan is a childhood friend of Bierman’s who played point guard for the Johns Hopkins University basketball team and went on to become a real estate and hedge fund attorney in New York City. He worked at Alvaraz and Marsal, the global restructuring firm that liquidated the assets of Lehman Brothers after the Wall Street firm filed for bankruptcy in 2008.

Ganan had read about the cannabis industry’s need for cultivation real estate and the high returns that investors were getting on marijuana properties. After shadowing Bierman at MedMen’s offices for a couple of days, he signed on.

One of Ganan’s first major recommendations was that MedMen should start a fund. Bierman had never done this type of fundraising, but he liked the idea and told Ganan to proceed.

MedMen launched the fund in late spring 2016 and closed it last April, having raised $60 million and invested in seven companies.

MedMen shuttered the fund before it reached its stated goal of $100 million because it had an opportunity to invest in MedReleaf – a publicly traded licensed medical marijuana producer in Canada – at a pre-IPO price of $2.09 per share. MedMen pumped in some $8 million. When MedReleaf announced it was going public and the per-share price would be $9.50, MedMen stood to make a killing. Reasoning it would be unfair to the fund’s early participants to accept more investors who would basically dilute the returns, MedMen closed the fund to new investors – and hatched plans to open a second one.

Those seven businesses in which MedMen invested reflect the criteria that its executives consider when they pick investments. They include:

  • Limited license markets where being a first mover is a significant advantage and the barriers to entry for other competitors are high.
  • The market offers considerable potential.
  • The acquisition target is greatly undervalued.

“There are a lot of people in this industry who are first. But there’s a smart way to be first, and then there’s just being first,” Bierman said.

In other words, if you’re first but not strategic you’ll lose the edge that first- mover advantage offers.

“If you’re thoughtfully first, be first in places where you can create a moat around what you’re doing,” Bierman said. “That’s why we’ve shied away from the free-market states. There is no moat in Colorado or Washington.

That philosophy has served MedMen well. Since shifting gears and almost going broke a few years ago, the company has swept across the North American cannabis landscape, acquiring a cultivation facility in Los Angeles in early 2016 that now produces about 120 pounds of cannabis per month, as well as a cultivation license for a business in Mustang, Nevada, near Reno, that includes a 26,000-square-foot greenhouse and a 19,000-square-foot extraction and production facility that are expected to be operational by this fall.

MedMen also acquired three operational dispensaries in Southern California, a license in New York that gives it a vertically integrated business with one grow site and four dispensary locations, as well as a 6% stake in MedReleaf.

A West Hollywood dispensary MedMen acquired in late 2015 underscores the company’s strategy. It remodeled the facility, introducing innovations like patent-pending “bud cases,” which are round, handheld cases that hold a bud and have a built-in magnifying glass and aroma holes so patients can better see and smell the product.

MedMen reopened the store in early 2016 and said it has reduced the cost of goods sold from 63% to 50% through measures such as proprietary business software that has made the store more efficient. The dispensary also increased its patient count by 34% and boosted per-patient spending from $65 to $83, something Bierman credits to a store redesign that made for a more pleasurable shopping experience.

“The cost to get into that business today, if we were going to look at a comp, is probably 2½ times what our cost was. And that’s in less than a year,” Bierman said. He reckons MedMen bought the dispensary at about a quarter of the value it’s worth today.

Another attraction is West Hollywood allows only four licenses, so competition is limited. It’s surrounded by Los Angeles and borders several heavily populated communities in the city.

Bierman said it also helped that he had established a regulatory affairs department that tracked the city and state’s rulemaking processes, and had a pulse on when regulations were going to come forward.

“We were able to do that because politically we were so active in Los Angeles, we had a really good sense of what the future would look like,” Bierman said. “We had a seat at the table and were part of the discussion as those rules were being contemplated. Because we had that foresight we could anticipate what the value of this thing would be come 12, 24 months from the time we did the deal.”

New Fund Launches

MedMen launched its second fund on June 15. The company set an aggressive target of $250 million that it hopes to raise in two years, as well as a deployment time frame of 10 years.

The firm closed on its initial $17.5 million injection on June 20. Some of that is already committed to what Bierman described as a retail project near Los Angeles International Airport.

“We’re not slowing down on the deals side. The deals are the specialness of all of this. The last thing we’re going to do is lose our momentum,” Bierman said.

The fund is still focused on wealthy individuals and family offices, but Bierman said MedMen is “having discussions” with institutional investors as well. “I believe there’s a high likelihood this fund will see some institutional capital,” Bierman said.

Mending Fences

While Bierman has been busy transforming MedMen, he has also sought to strengthen the firm by reining in what can be viewed as disdain for the legacy marijuana community. That has meant supporting causes that legacy people would most likely endorse, such as the Marijuana Policy Project.

Rob Kampia, MPP’s executive director, called MedMen “our biggest supporter for reform.”

While Bierman acknowledges the MPP donation is a charitable act, he unabashedly points out that it’s at least as much about smart business as it is charity.

“It’s going to make investors more money because as more laws change, more markets open, we have more opportunities,” Bierman said.

He also said he’s become more mature than when he first got in the industry seven years ago, when he was 28.

“What do we do great when we’re 28 years old, except for maybe athletics?” Bierman asked. “As I look back at my 28-year-old self, I got into the industry and I saw the opportunity. I’m very unfiltered, and I wouldn’t change that about myself, because when people are dealing with me they always know where they stand. That part of me will always be there.”

But he also admits he has moderated his style, if even just a little. For example, he still may make unfiltered statements about the legacy marijuana demographic, but he prefaces some of his comments by acknowledging what legacy marijuana people have achieved, for example – statements along the lines of, “Without the legacy community, the marijuana industry wouldn’t be where it is today.”

Bierman also said he has more respect for the legacy people because of their trailblazing role in the industry but feels they are “unfortunate” because they lack the business acumen to succeed in an industry they helped create.

“I’m more sensitive now to those people who have paved the way within the industry and so many of them won’t be able to see the future,” Bierman said. “But I hope the respect is mutual, and that they can have respect for what we have built here.”