The strategy used to become Nevada's dominate cannabis player Federally laws make it illegal for legal cannabis businesses to cross state lines. Bruce Macdonald the CEO of C21 Investments a publicly traded cannabis company trading under symbols CXXI on the CSE and CXXIF on the QX joins Dan Humiston to talk about taking advantage of the restrictions to the cannabis industry in Nevada. Produced by podCONX
The strategy used to become Nevada's dominate cannabis player
Federally laws make it illegal for legal cannabis businesses to cross state lines. Bruce Macdonald the CEO of C21 Investments a publicly traded cannabis company trading under symbols CXXI on the CSE and CXXIF on the QX joins Dan Humiston to talk about taking advantage of the restrictions to the cannabis industry in Nevada.
C21 Investments
[00:00:00] Dan Humiston: Today. Raising cannabis capital. We are joined by Bruce McDonald, the chairman of investments, Bruce, welcome to the show.
Bruce Macdonald: Thanks Dan, glad to be here.
Dan Humiston: I'm anxious to learn more about investments, particularly your business model. But before we get into that, I want to give our listeners just a little background about it's a vertically integrated ecosystem of cannabis businesses trading on the Canadian stock exchange under ticker C X, I, and now in preparing for today's show, it looks like.
You acquire companies in similar geographic regions and then implement practices and policies and leverage economies of scale to make the entire enterprise more profitable. I know those are really broad strokes, but is that roughly your business model?
Bruce Macdonald: That's how we started then. And we ended up with about five different properties, four in Oregon and one in Nevada. And, we have ultimately worked strategically to roll [00:01:00] up our assets. As you said in Oregon into a a single operation out of Ben now, but the real cash cow ofis the Nevada asset we bought.
It's an absolute gem.
Dan Humiston: That's awesome. That's awesome. Now, when you said you bought it, , did you purchase it a hundred percent or did you take an equity position in the company?
Bruce Macdonald: We bought it a hundred percent on terms if you will. So I, Newman was actually the first operator to open in Nevada and we bought silver state relief, which was his dispensary. And just as we bought it, he opened a second dispensary. So we're currently two very large dispensary's about 17 million in revenues and very efficient, 7 million of EBITDA each. so, Oh no it's you said it's a beast and we paid for it mainly in cash on the installment plan. I think we're down to 14 million and we still go sunny, but we've got 30 more months that we're paying them over and that's very affordable based on the the money, this thing spins.
Dan Humiston: Oh, my gosh. Good for [00:02:00] you. Good for you.But now the other companies, a hundred percent owners or your.
Bruce Macdonald: You said owners and they said we've consolidated down under the the Phantom farms brand. We have a farm that generates about 3000 pounds of outdoor. We're purely wholesale when you talk about Oregon, but they said. Probably 85% of our revenues are in Nevada. So it's a lot of work.
And this has gone from a bit of a go-go business where you went out and you stayed claims and you tried to get in the game as an early mover. Our strategy has very much shifted from that to a measured sort of long game approach. If you want it right.
Dan Humiston: , Well, and yet, I see evolution of any industrybut I know like you're in a number of different verticals. , you're cultivating, you're just mentioned retailing. is there any particular vertical that you're focusing more on?
Bruce Macdonald: I would actually probably answer that as it's the sum of the parts. It's the secret [00:03:00] sauce? The seed to sale means you are in control of your own destiny. As we stare at, Our strategy, our value proposition, right? From a strategy perspective. First thing is what we talked about, which is you've got to get your house in order.
You need to run an efficient and profitable business to build a scalable model. Otherwise, what are you going to scale? We've just gone through what I would call , the second phase of our medium term strategy, which is around the fortifying of our balance sheet. And we did a really unique transaction around R D ventures to ensure that we were in a position well capitalized and we turned out our debt so that everything was in good shape.
But, the focus from there very much is around an organic build of the backend where you can grow more capacity. And then it's more of an M and a approach, limited license state. You're buying someone's business from somebody to add dispensary's to our program. And I think when you look at that fourth step cost of capital is absolutely critical in getting it [00:04:00] right.
Dan Humiston: Yeah. And I think just taking a step back you can't cross state lines, so you have to really have the seed to sale within each state.
Bruce Macdonald: you do. And I think that's why as we think, like how do we best strategically grow the logic of owning your home market? Is just the way to go. Now we didn't start off that way. We were throwing darts all over the board. We looked at, a hundred different companies, how do we get in California?
You spread yourself thin you're going to die for the reason you just said, you've got to be end to end, but we're currently about 5% of Nevada. And so I think our focus in the medium term is going to be about. Owning our state, which to me means a 15% share. So we've got lots of room to do that.
And then we get all the leverage benefits of we've already got the grow capacity. And so we don't have to reinvent that and double down on costs.
Dan Humiston: Yeah, that makes sense. That makes sense. I did see though, that you are looking at California in Colorado. Is that right?
Bruce Macdonald: Yeah, but I we'll keep one eye [00:05:00] open, but , we're not gonna turn our head. This is for the medium term, which I'm going to say, 12 to 24 months is going to be a Nevada expansion. We love the demographics of Nevada. It's a real growing state with good middle-class.
We manage 600,000 clients a year through our two dispensary's
Dan Humiston: Oh, man.
Bruce Macdonald: it's, 27 cash registers. It's a machine. So you just think about that. If you take curely, food's done just a phenomenal job. They focused on owning Florida. We're in a good position. Nobody else wants to own Nevada Ayr did a good job in getting some, but we know we like where we sit.
Dan Humiston: What kind of companies would you be looking for? How does somebody get on your radar?
Bruce Macdonald: I think, there's a lot of answers to that question, but you have to choose your clients, when you gotta decide who you want to be. Our focus has very much been. Sort of catering to the local crowd. Sunny place is dispensary's on the right roads where the commuter traffic goes.
We weren't the let's chase, the strip, let's go to Vegas. So like the [00:06:00] first part of our sort of value proposition was really defining who do we want to target? And so we built a business around locals, we're not allergic to tourists, obviously. But . We spend all our time doing a sort of what I would call cost optimization.
Sunday's background was in the automotive electronics business delivering stuff for car manufacturers. You're probably running a 7% gross margin, and that just gets you in a mindset where you reinvent yourself every day. How do we cut costs? How do we make this cheaper? That gives you the ability to price effectively.
And I think we are the best price in the state with our goal being to be able to put that price tag on the product and still make our margin.
Dan Humiston: Yeah. You mentioned as sunny, a couple of times that sunny Newman who's the CEO of your company.
Bruce Macdonald: Correct? Correct.
Dan Humiston: A lot of our listeners we're invested quite heavily in the publicly traded cannabis market and , Kenny. He kinda got beat up , but I'm looking at your stock for the last six months.
And I'm saying, [00:07:00] what the heck, , this company's stock has more than tripled over thatperiod of time. What do you attribute this massive growth.
Bruce Macdonald: You know what I think it is having a concise plan and just operating the plan at the end of the day, we are really lucky. , we just announced earnings yesterday, but we announced that, for the quarter we managed to generate 2.3 million of net income.
So that's earnings. That means we're actually earnings positive for the year now. Beacon securities just came out and ranked us number one in free cash flow in the sector. And number three in operating cash flow in the sector out of the 21 stocks they follow. And that includes all the big guys. So we're a little bit of the little engine that could, but when you really start to stare at it, yes, we've moved up on the back of the earnings, but when, if you go back a week, we were a hundred million dollar.
Market cap company where you were earning 10% after tax earnings on that a hundred million dollars. So we were making [00:08:00] 10 million, like it's just, it's cheap. And so what do I attribute it to our starting isn't fully understood. And I don't want to pull you off these tier, but we announced two weeks ago that we were expanding our cultivation facility.
And it's funny, right? You put an announcement out and you say we're building out 40,000 new square feet, and it's going to be 7,500 pounds of flour and you watch and you're like, do people actually understand what this means? And you get the feeling like, no, they don't. They don't like what's
7,500 pounds of flour worthwhile. It's worth $17 million. What's that going to cost to produce while it's already in our warehouse, we were already paying rent. Et cetera, et cetera. So it's going to cost a 6 million to build it out once, but
our operating expenses are going to be about $2 million. So there's a lot left over for the shareholder.. It goes back to , if everything you did was because, the shareholders cheer and it goes up, or it goes down, you'd do a lot of wrong things, but we know that 15 million of pre-tax, everyone will thank us for down the road.
So it's been that mindset [00:09:00] over and over again that the one game we play is. Put your shareholder hat on. What's good for the shareholder. We take a little bit of noise in the markets because sometimes we don't communicate enough because we can't. But we're playing our long game and we're going to win.
Dan Humiston: See that's that's, those are some impressive numbers. Good for you. Congratulations. See that is this good news. It's good news. All the way around for the entire industry. , before I let you go, I want to ask you more about the long game. And you gotta be careful about what you say, but looking forward, what do you see over the next few years for this company?
Bruce Macdonald: Okay. I said, we worked hard in 2020, to generate some significant cashflow. We're tracking towards something around $11 million, which is. Big number. And we havesome friends in state that have a billion dollar companies that are doing the same number, but and this is fantastic for someone of our size, but really, I think what's critical is we make our decisions through that sort of cashflow and earnings lens.
And especially when you talk about the people that got burned, there were so many decisions where, it was through a hype [00:10:00] and flash type lens or a grow at any cost, even though the sum of the parts will never work, that won't ever be us. And we're going to be opportunistic with respect
two acquisitions anywhere, but we're going to this whole thing of let's dominate our home market somewhere where we have a proven track record and , we're gonna own that market. And that discipline, I think is what really is driving our results. Mean one of the interesting things is I think we are getting noticed.
The work we did around the backstopping, our debentures was with. Wasatch capital and Jason Wilde and Jwan and and CB one capital. And, it goes through three of the smartest brains that are putting real money into this sector.That helped us in lots of ways.
We had certainty on our balance sheet, but. It, it lets people know that there must be value here because those guys didn't just give us money on a whim. One other thing I want to touch on that we thought was absolutely critical in our growth is.
The MSOE is the new multi-state operator ETF. That's come out about labor day and has worked the way to 180 million of assets in a, whatever that is three short [00:11:00] months. We're one of the 16 plant Tunchi companies in their index. And that has been, again, a credibility thing. We were the little engine that could, we were a secret and not a lot of people knew our name but, we're doing our games.
I don't know that I really answered your question and where to from here, if the answer is in the form of sort of a roll-up play, we're going to mature this organic grow and delivered this value to shareholders. But most importantly, that position is with the seed part of the seed to sale. So the natural thing to do will be figuring out how to expand and add dispensary's at the right price.
Dan Humiston: That is some good stuff. That was some really good stuff I'll have all the links T to C 21 in the show notes. So if anybody. Is interested in learning more, check out their stock symbol. It's going to be in the show notes. Also, if you're a company in Nevada, you never know, I'm sure somebody from Bruce's team would be happy to speak with you.
But Bruce, I wish we had longer. This is good stuff. Let's sit, definitely plan to have you back [00:12:00] on again.
Bruce Macdonald: Yeah, I love it, Dan. And by the way, CXX, I F as well on the QB. We have ways in for Americans and Canadians
Dan Humiston: Oh, that's good to know. That's good to know. We'll definitely have that in the show notes in case you missed it, but Bruce, thanks again.
Bruce Macdonald: look forward to coming back. Thanks, Dan.