C3 Industries’ Brotherly Model for MSO Success

Founded in 2018, Michigan-based C3 Industries is a privately owned, vertically integrated cannabis company that has in short order expanded its retail, cultivation, and manufacturing operations from one state to five states, with a sixth on the way. The brainchild of brothers Ankur and Vishal Rungta, the CEO and President respectively, C3 currently boasts 24 High Profile dispensaries spread across Michigan, Missouri, Massachusetts, Illinois, and New Jersey, with Connecticut on the way. C3 also operates over 250,000 square-feet of cultivation and manufacturing space spread over six facilities and three, soon to be four, states – Michigan, Missouri, Massachusetts, and the upcoming Connecticut – with Illinois and New Jersey to remain retail-only for now. Company brands include Cloud Cover (“For the love of flower”), Galactic (“Smoke me with your leader”), and Habitat (“Embrace the wild”), which encompass the full range of products, price points, and potency.

As successful as C3 has been of late, however, its journey to relative equanimity has not been free of the same sorts of challenges that put all entrepreneurs in this space to the test. How C3 has managed to meet those challenges is what sets it apart from plant-touching companies that may have made very different choices in terms of how fast and how much they invested in the multistate expansion of their companies. To better understand the company’s mindset, Cannabis Business Executive spoke recently with Ankur and Vishal Rungta, the founders of C3 Industries.

“It’s an idea that’s been on our minds for a long time,” said Ankur of starting C3. “Vishal and I both went to school at the University of Michigan here in Ann Arbor, where I’m now living. I went to undergrad and law school here. That was an interesting time in Ann Arbor, which was sort of a hub for the industry in the pre-license era.”

Having seen the cannabis industry firsthand in the Ann Arbor area when they were going to school, the brothers each went on to careers in the corporate finance world. “I was a corporate lawyer and an investment banker in New York,” said Ankur. “Vishal was an investment banker, and then in private equity and then was at Google between New York and San Francisco. So, we went down a sort of traditional Wall Street corporate insider path, but while we were doing that, we were always having conversations about how we wanted to do something entrepreneurial, and cannabis was a space that we knew pretty well from having a passion for this product and for the space and the consumer.

“As we were building our careers on Wall Street, it also felt to us like we were developing the right skills to try to build a platform like this,” he added. “By that, I mean, some of those skills – corporate finance, capital markets, balance sheet management, real estate development – are the things that go into building a platform like this. We started kicking the idea around more seriously when we both left the corporate world, which was around 2014. We knew folks that were applying for licenses in places like Illinois, so we did a couple of consulting projects, and in doing that, it only reinforced our conviction that we could do something here. 2016-17 is when we said, alright, let’s start thinking about where we want to do this, how we want to do this, and start thinking about raising capital. We really got going with the process, and 2018 is when the first facility went online, in Portland, Oregon.”

It turned out that Oregon was the market where they would incubate, and evolve, their original ideas about what sort of company they envisioned C3 Industries to be. “No, our approach has changed considerably over time,” said Ankur when if the plan was always to be vertical. “When we first started the business, we were both very passionate about flower in particular, and about the cultivation of flower, so we went into Oregon thinking we will build what we consider a world-class cultivation facility and produce high-quality cannabis at scale. There weren’t too many groups doing that at that time, and we envisioned a big wholesale-only play, building a great cannabis flower brand over time, and growing that business.

“And we chose to be in Oregon at this really interesting time in that market, 2017-2018, when it was becoming very oversupplied,” he explained. “I think [Oregon] was the first market that went through that whole lifecycle in terms of getting into that place of oversaturation and trough pricing, and, of course, the Oregon experience was worse than almost any other state that has followed. So, we got a firsthand lesson or introduction into these market dynamics, and through that we figured out that we are good cultivators, and we are able to produce high quality products at scale, and we actually ran a profitable business even in that environment, but it also taught us that trying to be wholesale only, trying to be just a producer, particularly in these competitive markets, is a really challenging thing to do, even if you’re a really good operator.”

Their best laid plans met the cold hard reality of cannabis. “We’d always envisioned being in Oregon and Michigan, and those were the two initial states that we targeted,” said Ankur. “In Michigan, as we started to develop our platform, we did it with a specific idea of being vertical, and while we developed our production facility in Michigan, we started developing a number of retail sites. And as we went through that process, that’s when we mentally made the leap to say, ‘You know, we love cultivating and we want to be producing these products, but we need to be vertical, particularly in these competitive markets.

“That feels like the right strategy, and it did evolve over time,” he added. “Today, we’re vertical in the three core markets we operate in – Michigan, Missouri, and Massachusetts – where we have been [operating] for multiple years, and as we are moving into new markets – New Jersey, Connecticut, Illinois – we are again shifting our strategy and saying that in some of these states, it may make sense for us only for retail, and in some, like Connecticut, we are going to be vertical. So, there’s been an even further evolution in our thinking in the last year or two.”

This was also a period when some of the larger MSOs were exhibiting major growth, with lots of M&A, and some would argue that a few of them got out over their skis, and as a result we’ve seen them leave some of these competitive markets. Was any of that perhaps instrumental in C3 not making the same mistakes that other people made?

“I’m just laughing because if you think about where we come from – the capital markets world – as we were launching this business, we had people that we knew well that we respected telling us, ‘Hey, you should be doing these things. You should go into the Canadian public markets and raise $100 million, and then go do a bunch of M&A,’ replied Ankur. “And I think that it would have actually fit well with our backgrounds to take that approach. I’ll speak for myself, but I think we were always a little bit more conservative than some of those folks, and we envisioned building things a little bit more piece by piece and a little bit more organically, and ideally based on strong fundamentals versus just aggregation.

“So, we did not do those things at that time,” he added, “and there were some that may have thought, ‘Why aren’t these guys doing that stuff when they have the skill set to do it.’ I think we just had a different approach in mind, and frankly, in more recent periods, as our business has grown substantially and we’re relatively low-leveraged compared to most of the industry, I think a little bit of that approach is paying off, and people are saying, ‘Well, you built this great business, and it took a little longer, but maybe it’s a little healthier and built for the long term.”

That said, according to Vishal, it was not an easy decision to make. “I think specifically for us at the time, it was hard not to feel like, ‘Oh, man, are we being left behind, and are we being too conservative,” he recalled. “But we are, I think, inherently much more conservative than many of our peers in this industry. We’ve been focused on the fundamentals of the business and not growth at all costs, which was a bit of the mentality a few years ago. The thing I’d say about it, too, is that I think we would have done M&A if we thought the valuations made sense. That was always the biggest gating issue. We had the skill set and we wanted to grow, but not at all costs, and valuations were astronomical at the time. These things were trading without any relationship to EBITDA, profitability, or cashflow, and given our background, it was hard to understand how to get comfortable with any of the underwriting. I think our conservatism and natural inclination that things were too expensive helped us not make some of those decisions, which was great.

“I also think,” he added, “just overall for us, that we’ve always tried to tie our growth in with the infrastructure we had and make sure that we are operationally sound. For some folks, I think they were able to grow very quickly, but it was very difficult to integrate multiple acquisitions at once. You had a bunch of markets that were still developing, and no one really knew what the dynamics were in any given state at any given time. For us, because we grew slower and more organically, we’ve been able to have a team and infrastructure that’s grown in a healthy way alongside that business. So, we have something now that is a healthy platform for additional growth, and we’re always trying to manage that. When are we increasing our ongoing forward-looking development pipeline versus feeling like we have the resources to actually manage all of the existing business? So, those things enabled us to be a bit slower and more conservative but then build this in a way where it could sustain that growth, and it was growth that we thought would actually be accretive to our shareholders.”

Sizing Up New Markets

Is the idea that C3 establish itself securely in a given market before expanding beyond it, or expand when the opportunity strikes? “In our experience,” said Vishal, “if you enter a market and buy a sizable already operational platform, you almost always have to pay a significant premium for that, and you typically have to finance it with a lot of debt, because there just isn’t much equity capital in the space, or the cost of that capital is too high. And so, inherently, when you’re doing those deals, you’re trying to be aggressive, you’re trying to grow quickly, but you’re taking on something that’s very pricey and high leverage, and you may be buying it at peak performance and overpaying from a fundamental basis. So, our thinking has led us often, even when we’re doing M&A in new markets, to buy what we consider a more organic opportunity.

“We’ll buy a one-off paper retail license that’s not operational,” he added, “and we’ll build it out and open it. We’re coming in at a much lower price point, we’re taking development and timing risk alongside performance risks, but it feels like a lower risk and a more creative approach. It does take a lot longer, but these are some of the tradeoffs that we see when we’re looking at the marketplace. And we seem to consistently go in the direction of the more organic sort of value opportunities, if you will. With that said, as we’ve grown and our business has scaled pretty considerably, we are taking a harder look at larger operational portfolios, but it’s going to be through a pretty conservative lens.

“So, if the question is, do we seek to get to a certain level of depth before looking at another market, I think overall, yes, we’re really trying hard not to be shallow anywhere,” he clarified. “There was a period of time a few years ago when there was the mentality of flags on the map. How many states can I say I’m in because if I’m in a lot of states then I’m of a certain size. But we’re not trying to follow that pathway. If we go into a market, we want to believe that we can achieve a certain level of depth.”

Of course, life does not always comply. “The reality, to Ankur’s point, is that entering to go immediately to depth usually means buying a fully scaled platform that usually comes at a valuation or premium that we’re not super comfortable with,” noted Vishal. “But in Illinois, New Jersey, and Connecticut, we’re going into those markets because we have a base of assets that we can do either organically or at a price that we feel comfortable with. And we believe we can secure additional licenses based on how the dynamics of those markets work out that will allow us to get to a point where we have a real presence in those states. So, yes, we’re trying to make sure we adapt before we go all over the map and have a shallow presence in multiple markets, but the reality is that it does sometimes still take time to get there. But we won’t enter if we believe we’ll be left with what I would consider orphaned assets that are sub-scale.”

A big part of the learning curve was Oregon, which they eventually decided to leave altogether. “Oregon was obviously our entry into the market,” explained Vishal. “The reality of Oregon is when we started the business – and Ankur touched on this earlier – we started it with a wholesale mentality. The initial thinking was to be a prominent brand, with premium products, and have a wholesale business. Obviously, Oregon is a difficult market in general, and it is a particularly difficult market if you are a wholesale-only business. And we held our own in Oregon, and weren’t losing money there, but it wasn’t a great use of resources as the rest of the company began to scale. And for us to have gone back and invested in the retail would have been a bad use of capital, because at that point, we had better opportunities in our other states where retail would be more lucrative than any given door in Oregon would have been.”

They had made their own bed. “I think by having gone in with a wholesale-only mentality and not immediately going for a vertical presence, it left that asset in a tricky spot where allocating more capital towards the market would not have been super-efficient, but if we weren’t willing to allocate the capital then the asset as a standalone wholesale business wasn’t super interesting for the time and effort we were putting into it,” he added. “Through our expansion, our business had naturally shifted to the Midwest and the Northeast, so Oregon started to feel like a little bit of an island for us. It was no longer a great part of the strategy or the overall growth of the business.”

Ankur noted, “Like a lot of the MSOs, we are also looking at our portfolio very regularly and making sure that it’s rational, and that each asset makes sense on a standalone basis. We don’t want to be too emotional about how we look at this. We don’t want to be worried about some cost that we’ve incurred. We really want to maximize the performance of the business now and going forward. And so, we just try to take that mentality out of the business, and I would say that we’ve got a pretty clean portfolio in terms of asset-level profitability. We don’t have a lot of this that we’re dealing with, but it is important that we continuously look at optimizing our portfolio, rationalize it, and this is just part of that process.”

Muscling In On Competitive Markets

I observed that Michigan, Missouri, and Massachusetts are very competitive markets. “We have opened up our first doors in Illinois and New Jersey as well,” responded Ankur. “That happened in early Q1, so we are operating now in those two additional markets. But to speak to the three you mentioned, absolutely, they’re all competitive but in different ways. I think Michigan and Massachusetts are your classic uncapped markets at the state level that have developed into fairly competitive environments both wholesale and retail. Missouri is a little different in that it has a fixed number of licenses at the state level, but it’s not a low number of licenses. It’s a healthy ecosystem from a competitiveness standpoint, so it’s also gotten quite competitive, and there’s also been consolidation and a lot of verticality, which creates a lot of interesting dynamics in the wholesale and retail markets.

“Our take on these competitive markets is that we’re not afraid of being in them and competing in them,” he added. “The way I view it is you just have to build the right business and business model and portfolio to be successful in these markets. Just start with our home state of Michigan, where our headquarters is located and is still our largest business by revenue. We have 11 stores here, we have a 125,000-square-foot production campus, and we have a very strong and stable retail business. I’m happy to mention it does roughly $90 million in revenue, give or take, and it has strong gross margins.”

It all adds up. “We have a very healthy retail portfolio,” he stressed, “and I think we did a really good job citing our locations in the right sub-markets. We’ve got some interesting border plays, and if you go upstream we haven’t oversized our production capacity relative to our retail. We’ve done a good job of sizing it well, and by that I mean we can still push a very solid portion of our products through our retail stores in Michigan. That can be 75 percent plus, so we’re not taking too much wholesale exposure relative to the volatility of that wholesale market. And we also have products that we do take into the wholesale market, but it’s not out of any desperation. It’s done selectively with the right buyers and the right credit-worthy partners. So, we feel like we’ve got a portfolio here that is stable, highly cash-generative, and profitable, and we feel really good about it.

“And there’s a ton of TAM in Michigan,” he emphasized. “When you look at total addressable market, Michigan’s doing over $3 billion run rate of total market. So, if you can build the right portfolios in these competitive markets, there’s a lot of revenue and market share to grab, and frankly, I think a lot of the large MSOs are not going to be able to avoid it for much longer. I think they’re going to have to start looking at markets like Michigan for growth, and so, yeah, we’re excited about what we’ve done in these markets. And when you look at our next three being New Jersey, Illinois, and Connecticut, we think they are also going to be competitive markets over time, all to varying degrees. But we do feel like with our skill sets and some of the experiences that we’ve built up in places like Oregon, Michigan, Massachusetts, which followed Missouri, it feels like we built some of the right muscles to go and be successful in the other new markets.”

A Profitable Platform

Is C3 profitable, and will it need to raise more money at some point to accomplish its goals? “Yes, we are profitable,” said Ankur. “To give you a sense, we did around $160 million of revenue last year, and this year, we expect to do about $250 million of revenue. We are also generating healthy EBITDA margins, so from an operating cash flow standpoint, the business is healthy and growing. We’re achieving mid-20s EBITDA margins right now, and we think we can get that up into the high 20s, which would put us in line with the strongest operating cash flow profiles of the large MSOs.

And then we’re relatively low leverage,” he continued. “I won’t get into the exact details of our balance sheet, but I will say we’re far less leveraged than most of our public peers in the tier one and two categories. As a result, we’re generating a very healthy amount of post-tax, post-interest cash flow. That number was substantial in 2023, it’s continuing to grow into ’24, and the way we view it is we’re one of the higher-growth companies from a revenue standpoint in the industry. If you look at our revenue CAGR over the last few years, it’s much higher than a lot of the public companies. Some of them have far more scale than us, of course, but we are scaling quickly, and we’re doing it in a low-leverage, high cash flow generation, way.

“So, I think we’re in a really exciting spot,” he added. “The company is healthy and growing quickly, and the question for us is just how much more quickly we want to grow. Do we want to continue to take the approach we’ve taken historically, which is to win new licenses ourselves, or to buy the one-off retail licenses that need to be developed, and then take them through that process, or do we want to step up the pace and look at some larger M&A? And if we did look at a larger M&A, whenever we look at something from the beginning, we’re immediately thinking, if we finance something like this, how would it affect our balance sheet? When we talk about our conservatism, it’s really in that balance sheet management piece. We are not comfortable running thin on cash, and we are not comfortable signing up for M&A we don’t know how we’re going to finance. Up to this point, we’ve been able to manage the business very tightly, and we don’t want to let go of that, so even if we do decide we want to grow more quickly, we want to stick to our foundational principles that way.”

I’m continuously told how acutely expensive it is to build a scaled cannabis grow. Is it a major lift in any market to license, design, build, and get the facility operational? “Yes, it absolutely is getting more and more expensive with all the inflation we’ve seen in the construction world, and just the cost of building things,” concurred Ankur. “I think it’s a great question because it ties back to what we said earlier, which is that we have changed our philosophy. As we look at our new markets like New Jersey, Illinois, and Connecticut, there was a time a few years ago when we would automatically look to build a production facility in any market that we enter. That has now changed, and we are now looking at the market dynamics and the regulatory and licensing framework to see what the wholesale market is going to look like over time, and is it something that we can participate in profitably? But we’re also looking at the capital side because these facilities are costing more and more to build, and we’re in a very high interest rate environment, so the cost of capital is actually even higher now for us than it was a couple of years ago when we looked at sale leaseback financing or other types of financing.

“So, the cost of building has gone up, the cost of financing has gone up, and when you’re putting more equity into these projects, we see more contraction than in the wholesale markets in a lot in the states,” he added. “You start to ask, what’s the ROI on that investment in the production facility, and is that the most efficient use of capital in a capital constrained environment? And I will just say candidly, we have reached the conclusion that sometimes it’s not, and if you look at our capital allocation, if you look at how we’re prioritizing the world, it is with a focus on retail. That’s where we see a much higher return on capital, and frankly, a lower risk profile than what’s happening in the production world. I’d say it’s a pretty massive shift for us in philosophy over the last five, six years, because our original and true passion is on the flower production side, but the math on building these things and making them work is getting tougher and tougher every year.”

Another consideration is the projected timespan for facilities to stay in operation. “And just to get it operational,” added Ankur. “You’re sitting here today, saying, ‘Should I build this thing,’ and then you realize that you’re not going to have product on the market for 18 or 24 months, and the whole world may have shifted by then. There’s a very long development timeframe that makes it tough to underwrite and feel comfortable. And then, to your point, you’re taking risk on the back end, saying, ‘Well, at what point can we go to the national product marketplace?’ I think we’re a little bit more bearish on that timeline than others, but you probably have to ask yourself, if and when that happens, which of your facilities will become obsolete? Which ones won’t make sense anymore? And so, yeah, there’s absolutely a long-term portfolio construction that has to make sense. We talked about building the right scale in our production facilities; it’s the right scale relative to our retail in the market, but it’s also the right scale relative to what might happen in five or 10 years out when we may have to rationalize those production assets.”

Meeting the Consumer Where They Smoke

I mentioned to the brothers that everyone has been telling me recently that we’re entering an age where branding and brands are predominant. Did they agreed? Were cannabis consumers brand loyal?

“I’m trying to think about how optimistic I want to be,” said Ankur.

“I would go with realistic,” offered Vishal.

“I would start by saying that we should all recognize that we’re in a relatively commoditized space right now,” began Ankur. “And by that I mean, if we’re looking at the product side of things, the biggest chunks of the market are in the value segments – value flower and value packaged goods. The consumer, unfortunately, seems to be very price-driven and very THC-driven, so we’re seeing a lot of consumer decision-making driven by those considerations. I’m putting aside some very supply constrained, highly regulated markets – that’s a different animal – but let’s talk about the bigger, more competitive open markets, like Michigan, Massachusetts, and Missouri, where it feels like a lot of consumers are very focused on value, and it does feel like a somewhat commoditized product environment; meaning, if they want a 200-milligram medible, if one’s four bucks and one’s five bucks, and the $5 one is a higher quality, it’s not clear to me how the consumer really thinks about that, because a lot of what they’re looking at is THC and price.

“So, that’s my very broad strokes on the product market,” he continued. “There are segments and sub-segments of the product market for higher-quality branded products. There are some really high-end flower players, and in edibles and carts there are some full-spectrum, higher-quality product offerings. But those are relatively small volume in the marketplace from what we see, especially as you get into the ultra-premium segments. I think that over time that may shift as you get into a national marketplace, and a more well-informed consumer who understands why something may be five times the price of something else and is willing to pay that premium. So, I think it will evolve over time.”

But he also thought the idea that we’ve entered some golden era of brands was a stretch. “I think it’s going to be a slower ongoing process that happens over a longer period of time,” said Ankur. “But that’s the product market, The retail market – and again, I’m focused more on the open competitive markets – also has some feelings of commoditization to me. If you’re in a market with a lot of stores, and customers have a lot of choices within ten minutes of their home, what are they going to shop based on? If they go buy liquor, are they going because of the brand of the liquor store or are they going because of what the store is offering, pricing and promotions, what’s more convenient or near their home, where can they park and get in and out more easily.

“Those feel like the things that matter more than a retail brand,” he added, “and I’m not saying there aren’t scattered examples of companies that have built more branded retail offerings that may have a different pull, but what we’re seeing in the competitive markets is even those branded folks, in order to do well, have to play the pricing, promotion, convenience game more than something that’s very branded in nature.

“So, that’s where I see the competitive markets,” concluded Ankur. “But again, I do think that brands will have more relevance over time as information gets better, and as the consumer gets more informed. I look at it a lot like alcohol, where there’s absolutely a customer that would pay a significant premium for high-end products, but it’s when they get the right signaling. It’s when the right third party validates that this is in fact an exclusive product. We’re just not quite at that point yet. It still feels like the vast majority of customers are asking, ‘What’s the THC percentage of that flower? What’s the price?’ That seems to be the considerations that are driving the vast majority of personal behavior, and then the higher-end brand itself seems to be more of a niche.”

“I don’t really have much to add,” said Vishal. “I think that is how we’ve seen it evolve, frankly.”

What does this mean for C3’s product brands and how they address the market? “I think where our brands are set out to follow – and a lot of the larger companies are starting to do this as well – is the good, better, best mentality,” said Vishal. “And so, yes, each of our brands is meant to sit in a different tier, by which I mean the value and pricing tier, and then of course we always look at potency, because that also drives a lot of consumer decisions right now. We think they speak to slightly different demographics. They do have brand identities in some ways, but for the most part, we look at them as what is the portfolio of products we produced, which ones fit into the pricing signals that consumers are currently responding to, and that’s where each of those brands lives from the value spectrum. That’s how I think we’re approaching it right now. It’s possible for someone to have a brand and a niche following and get a premium price point. I just don’t know whether we’re seeing in any of our markets that that’s really doing much at any level of scale.”

When I admitted to being old school and always in search of quality, Vishal replied, “The funny thing for us is that that’s where we come from. That’s what we’re used to. So, this has been a big shift from where we started, because we used to try to solve for what we would want to find, and we quickly discovered that that’s not what the vast majority of the market is seeking.”

Thankfully, Ankur rode to the rescue of the quality consumer. “Just to think a little further out,” he suggested, “I think we’re in a moment that’s fairly commoditized, and so I do think long-term trends will move towards more importance around brands, and it won’t just be premium brands, it will also be value brands. I think right now, the value segment is very commoditized, where brand names don’t matter as much, but as we get to a national marketplace, just like you see with beer, just like we’ve seen in food or other consumer products, there will be a consolidation at the value level as well, and then those brands will start to matter a whole lot more.

“So,” he continued, “as I think about the longer term play for C3, we want to continue to build our hard-asset platform that we’re building right now; meaning, more stores in the right markets, more production facilities where we think it makes sense, continue building that MSO hard-asset portfolio, but then over a longer period of time, how can we build interesting brands alongside of that, and how can we build brand equity in those brands over time so that as customers start to put more of a premium or value on brands, so that we can be well positioned.

“Because I think that over a much longer period of time, especially as the large MSOs get into the public markets, there are going to be some that are viewed in a commoditized way, and they’re going to trade at lower multiple,” he added. “And then there are going to be some that are viewed as more of a branded platform, and they’re going to trade at a much higher multiple. At least that’s my theory, and where we are going to be on that spectrum will depend on whether we have done a good job of building our brands over a long period of time.”

Going Deep and Going New

Was C3 looking at any states other than the six it already had earmarked? “In terms of new markets,” said Ankur, “our number one priority right now is going deeper in all of our states. Other than Massachusetts, where we’re capped out at three stores, we can add more retail in the other five states, and we really want to build that depth in each of our markets. We’re actively looking for more retail in New Jersey, Illinois, and Missouri, and a little bit less so but still looking in Connecticut and Michigan. I’d say in our hierarchy of priorities, our top priority is more retail in these markets.

“After that, as we look at new states,” he added, “I’d say the state that has most of our attention right now in terms of a new market is Ohio. It fits really nicely into our broader portfolio of Midwest and Northeast, it’s 40 minutes away from Ann Arbor, where our corporate office is located, and it’s an exciting market with rec coming. I think that’s a piece of the puzzle that we think makes a lot of sense for a lot of different reasons. It’s a market that we’d really like to enter at some point, and we’re just thinking about the right way to do it. Beyond that, we do intend to apply in some new states. We’re keeping an eye on the Carolinas as they potentially develop a framework in the near future, and there are some states in the southeast and south that could be interesting business opportunities over time, so we’ll keep looking at that.”

Does that include Florida? “We applied in Florida in the round last year, and I think there’s talk that those licenses will be awarded in the coming months, and then we’re really watching to see what happens with the rec initiative,” said Ankur. “We do think it’s a tough market to enter now with some of the folks that are already very established there, so I don’t know if we have a clear answer today on what we would do if we actually won that license.”

I noted that they are native New Yorkers but didn’t mention New York. “Yeah,” said Ankur, a tad ruefully. “We really wanted to participate in that market, and we spent a lot of time talking to folks there. Unfortunately, it’s a market that’s not really designed for groups like us to participate in. If we wanted to go into retail there, there’s rules that say you can’t have any cultivation in any other market anywhere in order to own retail in New York, so that was effectively blocking out companies like ours from the retail side.

“And then generally,” he added, “it’s been really hard to predict how that market is going to play out with the regulations and the licensing framework. So, just going back to everything we’ve said, with our desire to be able to underwrite things and feel confident about how they’re going to play out, it’s very hard to do that in New York, and unfortunately, we haven’t felt competent enough to try to do something there.”

I noted that Wall Street people always start companies in order to sell them at some point. “We would never not entertain that possibility if somebody was interested,” replied Ankur, “but I would say that Vishal and I really enjoy what we’re doing. It’s rare to have the opportunity to build something from scratch that really reflects what you think is the right way to do something, and where it really reflects your values and priorities, and it’s really exciting to do it with your brother. While we’re a pretty large enterprise now, there are still elements of the two brothers trying to build a leading enterprise in the space, and we’re really enjoying the ride right now.

“So, I don’t think we’re in any hurry to do something,” he added. “I think that if we can continue to grow the business and the US capital markets open up eventually, that maybe we just continue down an independent path with this business. For us, it was never a short-term play, it was never about a quick financial outcome, so if we feel like there’s more potential and we’re enjoying it, I don’t think there’s any reason for us to stop right now.”

If retailers in their chosen markets want to get out, is C3 looking for specific situations? ”Yes,” said Ankur, “that could be an operating retailer, or that could be someone who’s gotten a site approved in New Jersey but is not sure how to move forward or wants to exit it now. It could be something operational or it could be something that’s at a more nascent stage, but really anybody who’s got retail assets in any of our markets, and we would be happy to talk to any of the new groups that are entering this space from a capital standpoint, and that could be debt or equity. I think those are probably the two most specific groups that we’re looking at to chat with.”

I asked the brothers what gets them up in the morning, and what, if anything, keeps them up at night? “What keeps me up at night right now is the idea that there could be unregulated channels for psychoactive cannabis products to get out into the marketplace,” said Ankur. “I think that we have really made a bet from a policy standpoint in this country and in the states that we want to sell psychoactive cannabinoids through licensed channels, and that we care about public health and public safety. And I’m definitely nervous about this idea that gas stations can sell psychoactive cannabis products with no regulation. That feels like a major shift in how we’ve approached these products, and so that’s probably the thing that has made me the most nervous. And I would say it’s also very confusing because I don’t think we look to sell any psychoactive products in this country in an unregulated manner, whether that’s alcohol, prescription drugs, or whatever it may be. And so, I’d say that’s my answer.”

“I agree with that,” said Vishal. “I would say generally, to be honest, I’m very thankful to say that in the last year and a half or so I’ve started sleeping pretty well. I’m proud of what we’ve built, and I think it’s starting to show what it’s capable of. So, to be honest, I spend more nights sleeping well than I do staying up, but that was not always the case. I would agree with Ankur otherwise. I think some of the hemp-derived stuff in the space and the confusion around the Farm Bill is concerning. I think general macro-uncertainty for this industry is challenging. Is there going to be rescheduling? Are we going to get treated like a normal business for tax purposes? Will banking open up so that my mortgage doesn’t have weird funky rules around it because I can’t go to a major normal banking institution? So, there’s stuff like that, but they are just pain point. It feels like we’ve already crossed the threshold in this country, so now it’s merely politics that is holding it up and living in that limbo is frustrating.

“In terms of waking up in the morning,” he added, “we’re two brothers, it’s just the two of us, we’ve always been close, and building this thing together, we have a great team, we have infrastructure, we’re on a great upward trend, growing substantially, margins improving, generating cash, and candidly, I’m excited to go out there and kick some ass. I want to keep going. I’d like to have C3 show everything that we both believe it’s capable of, and I think the landscape is increasingly favorable for us to make some very interesting moves. I think the next few years are going to be crazy and hectic like the last few years have been, but with tons of opportunity.”

The news that the DEA has agreed to begin the rescheduling process to Schedule 3 had not broken when we spoke, but the brothers had made quite clear that there were positives for C3 in either scenario. As Vishal explained, “If rescheduling doesn’t happen for some period of time, we believe there’s going to be some amount of distress out there. There are some companies that are fairly levered that are almost borderline reliant upon rescheduling for access to capital and for tax efficiencies, etcetera. In that environment, we think there’s going to be an opportunity to be fairly aggressive on the M&A front, and it could be pretty attractive.

“On the other hand,” he added, “if rescheduling were to happen in the near term, that would increase access to capital, it would help with 280E taxes and cash flow, which would be great, and it would potentially result in valuation increases for businesses, depending, I assume, on their fundamentals. So that would all be great for our existing business.”