At the Benzinga Cannabis Capital Conference in early June, David Feldman, Partner at Hiller PC and Skip Intro Advisors, interviewed C3’s CEO Ankur Rungta.
Raising Capital Organically While Staying Competitive
Feldman began the conversation by mentioning that a multistate operator (MSO) doesn't equate to having a presence in every state. He asked Rungta, “When deciding what markets to enter, what makes a state attractive to C3?”
Rungta responded, “We’re an unusual MSO in the industry, mostly because we’ve built our four-state portfolio organically; we've essentially done no M&A [mergers and acquisitions] to date. Most of our development has been our own efforts of obtaining and securing licenses, building out and then starting operations. This reflects our more deliberate and step-by-step approach to the growth of our business.”
Rungta points out the importance of intention behind each decision, by choosing to enter highly competitive markets in the beginning and learning to compete, and more recently, going after limited licenses and seeking out markets with less competition and higher margins.
“We really cut our teeth in Michigan and Oregon, and are now bringing that approach and discipline into markets like Missouri and Massachusetts” Rungta commented.
By securing development in Michigan and Oregon, C3 has been able to seek expansion into competitive markets such as Missouri and Massachusetts where licensing is more challenging.
Two of the three founders have a corporate finance background, so strategy and patience aren’t foreign tools for the C3 team. The utilization of skills has allowed the company to save on specific costs by never having to utilize investment banks or brokers to bring in investors, “We've always been really focused on the most efficient way to raise capita - how do reduce our cost of capital on an ongoing basis and optimize our balance sheet,” Rungta mentioned, and it goes without saying that building any sizable platform in the cannabis industry requires a lot of capital. Rungta continues, “How do we raise capital in a way that allows us to build a long-term sustainable business with strong margins and not just be focused on the short-term goals of opening up facilities or entering certain markets?”
Another area where the company has been able to save is with sale-leasebacks. C3 has consistently done these deals directly with family offices the founders have relationships with, offering better pricing than some of the REITS and other institutional players in the market.
Standing out in the Middle Market
Rungta points out that some of C3’s competitors have financed entire tenant improvement packages — all of the costs related to a facility — in sale-leasebacks. In some cases, the leasebacks involved 20-year base terms with significant escalations. Comparatively, C3 remains intent on managing its lease costs by avoiding funding its entire tenant improvements through sale-leasebacks and holding the line on significant annual escalations. “In an effort to avoid unmanageable occupancy costs as markets continue to become more competitive and tighter,” Rungta explained, “we have stayed very disciplined in how we negotiate our leases.”
“When we’ve raised equity capital, we’ve done it through direct relationships. We’re focused on structure and making sure there’s good alignment between us and our investment partners,” Rungta explains.
To date, C3 has privately raised upwards of $65 million of corporate capital from direct relationships in addition to separate capital in sale-leaseback transactions.
“In the long term, we believe the more successful and profitable businesses will be the ones who are thoughtful about how they finance their business along the way and how they manage their growth strategy.”
Though the company is mindful with its approach, make no mistake about C3s intent to strengthen and grow.
“We can’t be standing still, we must look forward to evolving our business. Building brand and product quality as well as staying current and relevant is important to us. It’s an exciting dynamic environment but definitely not one where you can sit back,” Rungta comments.
Deliberate and intentional seems to be a theme for the C3 team, as Rungta believes the industry to be moving slower than others assume.
“I think it’ll be many years before we see a true, wide-open national marketplace in the U.S. We may see banking reform and we in the industry certainly hope to see reform around the tax treatment of our businesses. However, I’m skeptical that we’ll move away from the state-by-state system any time soon.”
Feldman concludes the fireside chat, stating, “I’m a believer that when legalization happens, there’s going to be a strong middle-market below the biggest players. Especially since the majority of sizable MSOs will most likely be bought by big alcohol, big tobacco and big pharma. So what does that leave behind? Some say giants and brands but I think it’s going to be middle-sized companies like C3.”
C3 is a flower-focused, private cannabis company currently active in four states: Michigan, Missouri, Massachusetts and Oregon. It operates under the brands Cloud Cover and High Profile. Visit https://c3industries.com/ for more information.
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