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July 31, 2018 MJ Shareholders
C21 Investments, a Canadian cannabis company, is focused on rapid expansion through the acquisition of vertically integrated operations, most recently purchasing Silver State Relief, Nevada’s oldest cannabis operation.
The July 16 acquisition is part of a broader foray into the Nevada market, where C21 executive leadership sees an opportunity to expand operations and develop a vertically-integrated brand in a growing marketplace.
C21 became involved in the cannabis industry about three years ago, CEO, President and Director Robert Cheney told Cannabis Dispensary. “Our idea was to put together a group of professional investors who could bring capital, and one of the issues we identified was it was very difficult three years ago to raise capital for a cannabis business,” Cheney said. “So, we felt that if we could identify good operations—people with good skills at what they were doing within their sector of the cannabis business they were in—and we could apply appropriately priced capital to that in a professional way, that we could help them expand and grow. And we thought as an exciting new industry in the formative stages, it would be an exciting place to put our investment capital.”
An aerial shot of Phantom Farms, one of C21’s acquisitions in Oregon.
The C21 team visited companies across Canada, Washington, Oregon, California, Colorado, Nevada, New Mexico, Maine, Maryland and more, Cheney said. “Basically, we’re looking for people first,” he said. “We look for quality people. We spend quite a bit of time getting to know them to understand their background, why they’re in the business, what they hope to achieve in the business, and that’s how we came upon Silver State in Nevada.”
C21 saw Nevada as a well-organized and significant market that offered an immediate opportunity, Cheney said, and identified Silver State’s management team as “exceptional.”
“We think Silver State is probably the finest cannabis business that we’ve seen anywhere in the world,” he said. “We liked it because it’s vertically integrated, so they have 155,000 square feet of licensed cultivation space and processing space.”
The company holds two retail licenses, with one dispensary currently operating in Sparks (just east of Reno) and a second one opening in Fernley (further east of Reno) this November. Silver State sees about 36,000 local customers per month, Cheney said, and with larger corporations like Tesla and Microsoft located in the Fernley area, the population is on the rise.
“The expansion opportunity is to open our second retail outlet, and this area is currently completely unserved, and we believe it will be a very successful retail launch in November and will add at least $10 million of top line revenue next year,” Cheney said.
Vertical integration allows C21 to understand consumer behavior and preferences, Cheney added, which will help them create valuable and successful brands. “When you interact with a customer, you find out their pricing preferences, what they like, what they don’t like, and you get to understand consumer behavior on a very intimate level,” he said. “That’s why, from the very beginning, I preferred jurisdictions where C21 could be vertically integrated and we could understand consumer behavior.”
C21 currently has more than ten brands in over 500 dispensaries, Cheney said, and the company is looking forward to distributing some of those products through Silver State Relief.
“So far, [Silver State] has done no wholesale, and it does very limited processing, so the opportunity in Nevada … to scale this business up was significant,” Cheney said. “We plan to put in a significant processing team that will do vape, dab, shatter, pre-rolls, and distribute those out into the wholesale market.”
Most dispensaries in Nevada are not vertically integrated, Cheney added, so the state’s independent retailers are looking for branded products at the wholesale level. “We believe there’s an opportunity to build, in the next 18 months, a $30 million-plus revenue wholesale business serving these independent dispensaries,” he said. “So, over the next 18 months, we believe there’s an ability to build a $75-million vertically integrated, branded business in Nevada.”
C21 is in the process of launching a range of new CBD brands, Cheney said, and is also in the development stage of creating a female wellness brand, including retail space that is female-oriented.
Looking ahead, C21 is considering acquiring additional retail licenses in Nevada, and Cheney said Las Vegas is a priority. The company also owns three dispensary licenses in Oregon, and has a few retail targets in California, Cheney added. Although C21 also has advanced discussions in Colorado to enter that market, public companies are currently prohibited from making investments in Colorado. In early June, legislation to allow out-of-state companies to invest in Colorado cannabis businesses was passed by the state legislature, but vetoed by the governor.
“That has delayed our acquisition strategy in Colorado,” Cheney said. “However, we do believe in the first half of next year, the legislation will be approved and at that time, we’ll make a significant vertical move in Colorado.”
In the meantime, Cheney said, the company plans to continue its expansion. “We’re about delivering … a range of experiences—a range of retail products—that are exceptionally well-developed, targeted and delivered by staff who are knowledgeable and experienced, and we intend to be one of the top players in the space for the foreseeable future.”
Photos courtesy of C21 Investments
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