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An Interview with Bespoke Financial Co-Founder & CEO George Mancheril

By Aaron Green
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Founded in 2018, Bespoke Financial is the nation’s first fintech lender focused on the cannabis industry. Led by a premier team of experts in the credit, technology and cannabis industries, Bespoke Financial has financed more than $800M in GMV across the US cannabis industry and is on track to deploy $1B by end of year 2022 via their revolving lines of credit. Bespoke’s financing empowers cannabis companies to increase purchasing power, remove working capital limitations and accelerate growth in a rapidly growing industry. The company is backed by respected venture capital firms such as Casa Verde Capital, The General Partnership, Greenhouse Capital Partners and Ceres Group Holdings.

Bespoke recently entered into a milestone partnership with Blaze as the cannabis industry’s first tech-enabled B2B lending product available in CA & MA. Through this partnership, Bespoke and Blaze will be the first to bring “Buy Now Pay Later” to the industry. With just the click of a button, vendors can utilize this BNPL feature by paying directly within the Blaze platform via Bespoke’s financing with a 60-day repayment term on all vendor payments while minimizing dispensaries’ reliance on cash transactions. 

We caught up with George Mancheril, co-founder and CEO of Bespoke Financial to learn more about trends in cannabis lending and their unique partnership with Blaze. George was the company’s CFO prior to taking the CEO position in 2019. Prior to Bespoke, George was a VP at Guggenheim Partners in California. 

Aaron Green: What does it mean to be a fintech lender in cannabis?

George Mancheril: Bespoke Financial is a first mover in fintech lending for the cannabis industry, equipped with a robust network of investors, industry expertise and a multi-year track record solidifying our credibility in the space. We are focused on working with established cannabis companies who can use our financing to unlock growth, profitability, and success in the near- and long-term future.

Cannabis lenders must navigate a complex web of both cannabis and financing regulations, specific to each state, while trying to identify good borrowers in a nascent industry comprised of new companies. This has caused banks, traditional lenders, and institutional investors to avoid cannabis despite the unique growth opportunities and economic potential of the industry overall.

Green: What makes Bespoke different from other cannabis lenders in the business?

Mancheril: Unlike the few cannabis lenders active in the market, Bespoke Financial combines best-in-class technology and lending products designed to address the specific financing needs of the industry to better serve our clients. Our tech platform offers a simple interface for our clients to easily access financing, monitor loan balances, and manage payments. Bespoke’s technology allows us to service a broad array of clients in numerous markets across the US, offering our clients a reliable financing partner for their immediate and future needs.

Green: What markets do you serve in cannabis? Are you able to finance plant-touching operations?

George Mancheril, Co-Founder & CEO of Bespoke Financial

Mancheril: Bespoke works with cannabis companies across the entire supply chain within 15 U.S. cannabis markets, with the vast majority of our borrowers being plant-touching operations, Our portfolio comprises cultivators, manufacturers, distributors, dispensaries, non-plant touching cannabis brands, ancillary service providers and CBD companies. Our financing options have helped a wide variety of cannabis operations overcome working capital limitations and capitalize on new growth opportunities and increase profitability.

Green: You recently announced a “Buy Now Pay Later” partnership with Blaze. What problems do dispensaries have that you are solving for there?

Mancheril: As broader economic activity slows in the US with the threat of a recession impacting both businesses and consumers, dispensaries face supply, demand, and fundraising challenges:

  1. Consumer demand challenges:
    1. Cannabis consumers in 2022 are significantly more price sensitive than recent years for several reasons.
      1. High inflation over the past 1yr+ has reduced disposable income for consumers in the US.
      2. Post-COVID return to normalcy has allowed consumers to spend disposable income on many goods and services which were largely been unavailable since the beginning of 2020 (ie travel).
      3. Concern about a recession and slower wage growth has further reduced consumer spending.
      4. Illicit cannabis has always been the main competition for legal dispensaries with little enforcement or curtailing of black-market activity to note in the US.
    2. New cannabis consumers are gravitating towards smaller (but growing) product categories (edibles, concentrates, infused beverages, etc.) as opposed to just purchasing packaged flower. Dispensaries must carry a wide array of products and brands in order to better attract and service new and existing customers.
  2. Supply side challenges:
      1. Mature cannabis markets, such as California, have been saturated with over supply since Q2 2021 leading to inventory build ups and declining wholesale prices for cultivators, manufacturers, and brands (collectively referred to as suppliers). In this environment, suppliers are offering discounts to incentivize customers (i.e. dispensaries) who can:
        1. Purchase larger quantities more frequently to allow suppliers to move inventory before the product quality degrades.
        2. Pay COD for purchases as cashflow and capital are very important for suppliers during periods of economic stress.
      2. Dispensaries without the financial means to conform to suppliers’ preferences will be at a considerable disadvantage as they will continue to have trouble sourcing popular products at the lowest possible cost.
  1. Fundraising challenges:
    1. Cannabis’ federal illegality has resulted in a much smaller universe of potential capital providers. Once a potential lender or investor is identified, typically the application process requires time and resources to complete which puts dispensaries in an especially disadvantageous position. Large MSOs, who tend to attract most of the available capital, can rely on internal finance teams to source capital whereas dispensaries are much more constrained and require a simpler, faster, and easier application process.

Our partnership with Blaze to offer B2B BNPL to dispensaries addresses these challenges and more. With access to our financing, dispensaries are empowered with:

  1. Fast access to financing without a lengthy application process, entirely housed within the Blaze POS’ platform
    1. Dispensaries on the Blaze platform do not need to seek out lenders or weigh various financing options.
    2. No materials need to be gathered for the application.
    3. At the click of a button, dispensaries gain access to capital which they are free to use as they see fit with no obligation.
  1. Easy to understand financing
    1. No obligation: dispensaries have full discretion to use our financing only when they choose.
    2. No prepayment penalties or additional fees.
  1. Increased purchasing power, enabling dispensaries to
    1. Carry a wider array of cannabis products and brands to better service consumer needs.
    2. Purchase a higher quantity of inventory from suppliers to qualify for volume-based discounts.
    3. Pay COD for purchases to qualify for early payment discounts.
    4. Offer lower prices to cautious consumers as a result of these discounts, thereby increasing sales and gross profit while strengthening their relationships with suppliers.

Green: Can you explain your decision to launch in CA and MA first? 

Mancheril: While our ultimate goal is to offer B2B BNPL in all legal cannabis markets, we launched in CA and MA first because these states represent the largest and fastest growing markets in the US respectively. California was the first state that both Bespoke and Blaze launched in individually, so it was a natural starting point for our BNPL partnership. Massachusetts’ continued growth is compelling for any service provider and we believe our BNPL financing will be as successful addressing the needs and challenges in this newer market alongside those in more mature states.

Green: What trends are you seeing in US cannabis debt financing?

Mancheril: Since 2020, we’ve seen many MSOs increasingly rely on debt financing as opposed to equity capital. MSOs accounted for over ~80% of the debt raised over the past 2 years despite only representing a fraction of the broader cannabis market. Additionally, commercial real estate financing options for cannabis companies have increased over the same time period, driven by the growth of cannabis focused REITs. In general, by the end of 2021, we saw an increasing number of debt investors focused on higher yields participate in cannabis deals.

The recent macroeconomic volatility, increase in rates, and widening credit spreads in 2022 have slowed and slightly reversed the trends seen over the past 3 years. While banks and traditional lenders continue to wait for federal legalization, the vast majority of cannabis companies continue to have very limited access to debt financing options. Over the past quarter, we have seen debt investors leverage the recent illiquidity to negotiate higher interest rates and equity components in new debt deals, a trend we expect to continue until the broader economy strengthens or federal legalization gains traction.

At Bespoke, we empower entrepreneurs to grow their businesses without having to surrender control of their companies or visions. We are excited to continually be market leaders addressing this very vital need for cannabis companies of all sizes in all market environments.

Green: What trends are you following in US regulations and emerging markets?

Mancheril: The most recent headlines have been mixed for US cannabis regulations. Federal legalization is a huge point of focus with SAFE Banking failing (again) to survive the US Senate while the introduction of the revised CAOA offers a glimpse of hope. We believe federal regulatory changes will continue to be debated and discussed without any meaningful progress over the next 2 years but the current discussion of the CAOA revisions will provide the best insight on lawmakers’ priorities. On the local level, the list of states with adult-use sales continues to expand and we would expect to see a handful of new markets ushered in by voters in 2022.

Green: What would federal legalization mean for the cannabis lending industry? How do you stay ahead of the curve?

Mancheril: Federal legalization can occur in a variety of ways, including rescheduling cannabis (currently Schedule 1), descheduling cannabis entirely from the CSA, deferring to state specific regulation, implementing a national cannabis regulatory framework, or some combination of all of the above. The complexity of future regulatory changes makes the timeline for legalization difficult to forecast but we believe that the path forward will be comprised of multiple legislative changes over a number of years as opposed to a comprehensive reform addressing all the relevant points at once.

Based on the interests and goals of all stakeholders in this conversation, we believe that:

  1. Cannabis de-scheduling or rescheduling is unlikely to occur before 2025
  2. Any federal legislation which is approved will require long transition periods for new rules to be finalized, implemented, and adopted by relevant stakeholders (state regulators, courts, cannabis operators, financial institutions, etc.)
  3. Federal lawmakers may allow for financial institutions to service the cannabis industry prior to de-scheduling through limited scope legislation like SAFE banking
  4. Federal legislation will have a difficult time balancing deference to state specific cannabis regulation while enabling federal agencies such as the FDA and Treasury department to issue guidelines and rules for the broader industry. Too much federal agency interference will jeopardize existing & functioning cannabis markets while too much deference will impede vital oversight and consumer protection.
  5. We believe interstate commerce will not be allowed immediately following federal legalization. Interstate commerce will benefit larger MSOs and states with mature cannabis markets (which are hampered by oversupply) at the expense of smaller single state operators and new markets. State governments are motivated to legalize cannabis in the pursuit of tax revenue and economic opportunity for their constituents, both of which would be significantly reduced for newer markets competing with out of state operators.

Regardless of which path federal legalization takes in the coming years, the net benefit for the industry overall will be clear. Setting aside the societal benefit from expunging criminal records for non-violent offenders and freeing enforcement agencies to focus on more serious issues, any progress towards legalization would significantly reduce the challenges that cannabis operators face today. Cannabis companies will see a reduction in operating expenses, a wider array of options for basic business services like insurance and marketing, and an increase in consumer demand as the stigma of illegality fades into memory. Allowing banks to service the industry would remove cash as the primary form of payment, entice larger pools of capital to enter the cannabis market, and in general de-risk the industry tremendously. Bespoke will continue in our role as market leader and cannabis industry advocate in this new paradigm by empowering our clients with even greater access to the capital and services vital to their continued success.

Cannabis Revival and Year of the SPAC’s: What’s To Be Expected the Rest of 2021?

By Michael Sassano
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The unusual nature of 2020 gave rise to a reciprocally roller-coaster-like cannabis market. Cannabis was cemented officially as an essential industry with the rise of COVID-19, and November elections resulted in even more United States markets welcoming medical and adult-use sales.

The stagnant cannabis stock market of 2019 became a thing of the past by the end of 2020. Throughout the course of last year, bag holders anxiously watched cannabis options creep back up. Now, nearly two years since market decline in 2019, the cannabis stock market is exploding with blank checks and buyout fever. Much of this expectant purchasing is due to Canadian companies considering U.S. market entrance. Combined with the recent surge in the use of special purpose acquisition companies (SPACs) to invest, this has led to an increase in asset prices.

A SPAC is defined as “a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.” Though they have existed for decades, SPACs have become popular on Wall Street the last few years because they are a way for a company to go public without the associated headaches of preparing for a traditional IPO.

In a SPAC, investors interested in a specific industry pool their money together without knowledge of the company they’re starting. The SPAC then goes public as a shell company and begins acquiring other companies in the associated industry. Selling to a SPAC is usually an attractive option for owners of smaller companies built from private equity funds.

The U.S.-Canadian market questions that this rising practice asks are: Can Canadian companies enter a bigger market and be more successful? Is it advisable for U.S. companies to sell their assets to Canadian corporations whose records may be marred by a history of losses and a lack of proper corporate governance? Regardless — if both SPAC’s and Canadian bailout money is here, what comes next?

What is Driving this Bull Market?

Underpinning these movements are record cannabis sales internationally, making last year’s $15 billion dollars’ worth of sales in the U.S. look small in comparison. New markets have opened up in various states and countries throughout 2020, and that trend is only expected to continue. New demographics are opening up, especially among older age groups. This makes sense, as most cannabis sales — even in a recreational setting — are people treating something that ails them like insomnia or aches and pains.

Cannabis is set to take off, and we are entering only the second phase of its market expansion. The world is becoming competitive. Well-run companies that are profitable in key markets are prime targets for bigger, growing companies. At the same time, the world of SPACs will continue to drive valuations. Irrespective of buying assets, growing infrastructure is and will continue to be greatly needed.

The Elusive Profitability Factor

When Canada blew up, one of the biggest changes was companies began focusing the year on cost cutting and — most importantly — profitability. Profitability became the buzzword. But bigger companies are on the search for already-profitable enterprises, not just those that have the potential to be. However, profitability is currently still unobtainable in Canada. Reasonable forecasters should expect this year will show a few companies getting bailed out while many others will be forced to either merge for survival or declare bankruptcy.

An ideal company’s finances should highlight not only revenue growth, but also profitability. Attention should be focused on how well businesses are run, and not on how much money they have the potential to raise or spend. Over the years, there have been many prospective companies that spent hundreds of millions only to barely operate, and are now shells in litigation. Throwing money at any deal should have been a lesson learned in the past, but SPACs are tempting because they are trendily associated with new, interesting management styles and charismatic businesspeople.

Companies should be able to present perfect and clear financials along with maintenance logs for all equipment. In today’s day and age, books must be stellar and clean. As money pours into SPACs, asset valuations for all qualities of companies will rise. The focus instead becomes about asset plays, which will cause assets to continue rising as money is poured into SPACs.

Once upon a time, if number counters presented a negative review or had to dig too much, executives would turn a cold shoulder on investment. But in the age of SPACs, these standards of evaluation will be greatly undervalued. Aging equipment and reportability of every piece of equipment may or may not be properly serviced and recorded in a fast-moving market. Costs of repair or replacing equipment that isn’t properly maintained may be a problem of the past. Because when money comes fast, none care for the gritty details.

Issues for SPACs

Shortage of talent and training has become a big concern already in the era of SPACs. How many quality assets are out there? Big operators in the U.S. are content and don’t see Canada as an enticing market to enter. So, asset buys are likely to primarily be in the U.S. Large companies like Aphria may buy out some of the major American players, but most Canadian companies will use new funding rounds to pay down debts. Accordingly, they will then be forced to piece together smaller operators as a strategy.

A cannabis company’s personnel and office culture are very important when looking to integrate into a larger corporate culture. Remember, it’s not just the brick and mortar that is being invested into, it is also the people that run a facility. Maintaining employee retention when a deal occurs is always critical. Your personnel should be highly trained and professional if you want to exit. Easy to plug-in corporate structures make all the difference in immediately gaining from the sale or having to retool the shed and bring in all new people.

The rise of the SPAC-era and Canadian entry into the U.S. market will cause asset increases, but it is only the second chapter in the market expansion of cannabis. Proper buys will nail profitability, impeccable books, proper maintenance records and will have created an efficient corporate structure with talented personnel. The rest will be overpriced land buys that will require massive infrastructure spending. The basics of a well-run organization don’t change. The cannabis market is going to ROAR, but don’t worry if the SPACs pass you by- they are buying at the start of cannabis only.

Q&A with Bruce Macdonald, Chairman of C21 Investments

By Aaron Green
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Multi-state operators (MSOs) are on the rise in the United States, navigating complex regulatory frameworks to drive profitability through economies of scale and scope. C21 Investments is a vertically integrated cannabis company with operations in Nevada and Oregon; traded on the Canadian Stock Exchange (CXXI) and on the OTCQX (CXXIF). The company recently secured a commitment from Wasatch Global Investors, JW Asset Management (Jason Wild/TerrAscend) and CB1 Capital Management (Todd Harrison) who, in addition to C21’s CEO, provided an equity commitment for repayment of all convertible debt.

We spoke with Bruce Macdonald, Chairman of C21 Investments. Bruce joined C21 in 2018 after reviewing the company as a personal investment and getting to know the senior management team. Prior to C21, Bruce had a long and successful career in finance and capital markets at one of Canada’s largest banks.

Aaron Green: Can you give a brief overview of C21?

Bruce MacDonald: C21 is a cannabis company that has operations in both Nevada, and in Oregon. Oregon is fundamentally a wholesale business, and we recently announced a divestment of some non-core assets in the state. Our cash cow and where we currently see our best opportunity for future growth is our Nevada operations. We run a seed-to-sale business in the state with two dispensaries doing about $35M a year in revenue, with a 40% EBITDA Margin, and servicing 600,000 customers.

Aaron: Can you tell me about a little bit about your background and how you got involved in a cannabis company?

Bruce: I spent 37 years working for RBC in the capital markets business. I started as a floor trader, back when there was such a thing as a floor, and over the years held a number of positions, ultimately working my way up to Chief Operating Officer of the bank’s global capital markets division. Throughout my time, I built a lot of businesses, which was why C21 and this opportunity was so interesting to me.

My involvement in the cannabis sector was a bit of an accident, but it’s turned into a passion. It actually found me. I was an investor in the C21 IPO. I sat down with management to understand the investment and given my experience, they asked if I would consider becoming a member the Board. Since joining the Board, my involvement has been primarily focused on strategy and the financing side of the business. While I certainly didn’t anticipate it, it’s turned into a 24/7 gig and a challenge I am thoroughly enjoying.

Bruce Macdonald, Chairman of C21 Investments

Aaron: Can you tell me about the history of C21 becoming a MSO? Did you start in one state?

Bruce: While this history predates my time at the company, my understanding is that as a Canadian company, we had first mover advantage to be able to access public funding and get established in the US cannabis space. As part of that, the team at that time reviewed approximately 100 different properties. Because we were based out of Vancouver, the focus was primarily the Western states like Washington, Oregon, Nevada and California. Arizona wasn’t in the game yet. The first transaction C21 did was in Oregon, with a company called Eco Firma. In all, there were four acquisitions in Oregon, and one in Nevada. In fact, it was the investment in Silver State (Nevada) that was by far the most meaningful. As far as our Oregon assets are concerned, we have worked hard to integrate and streamline them into an efficient operation.

So, when I joined the Board, we were just completing the paperwork on the acquisitions, and finalizing our strategy and business plan to go forward.

Aaron: Today there are a number of MSOs. How does this more crowded market impact your value proposition; how do you think about gaining and maintaining strategic advantage?

Bruce: It’s important first to start with strategy. From a strategic perspective, we had the advantage of being the first operator in Nevada with Silver State. Sonny Newman, our CEO, started the business back in 2013. We run a seed-to-sale business so we have a deep knowledge of all aspects of the operation and really know the Nevada market. In fact, 70% on a dollar volume basis of the 700 SKUs that we sell are products that we manufacture. It’s a critical piece of our strategic advantage.  

What I would say is our most important strategic advantage is the fact that C21 is a stable, self-sustaining operator. What I mean by that is we’re one of the few businesses that actually makes money. This is what really allows us to be strategic and disciplined in our approach to growth. For example, it’s been more than 18 months since we did our last capital raise and that’s by choice. Every decision we make is through the shareholder lens and focusing on delivering value to customers and shareholders.

Looking at our value proposition, simply put, it comes down to four things – the right products, at the right price, in the right location, with the right environment. Some people might call this motherhood, but there’s a lot of work that goes behind each of them. 

Great quality products, that’s table stakes. You have to be a top-notch grower and generate quality products that people demand if you want to build a loyal customer base. Right price – to some it sounds like just putting the right sticker on the package – it’s not. It’s all about making sure you are efficient in your operations because to be profitable, you have to be a low-cost producer to deliver on a lower price promise. Tons of work has gone into our operation around being a “right price” business. 

Right location is another important element of our value proposition. We wanted to build a loyal customer base which for us meant focusing more on locals than on tourists. This is why Sonny positioned the dispensaries on commuter paths.

The last key factor is having the right environment to sell our products. In Nevada, the company ended up building fit-for-purpose dispensaries rather than fitting ourselves in a strip mall. We cater to over 600,000 clients a year. Now we’re doing 10,000 curbside pickups a month. With that type of volume, logistically speaking you need ample parking, a well-lit exterior so people feel safe, and of course, great curb appeal. These factors are essential in maintaining a loyal customer base.

Aaron: Tell me more about Silver State Relief and why it has been so successful?

Bruce: I think what you’re really asking for is: what is Sonny’s secret sauce? There are a few ingredients that go into it. As I highlighted, it was a purposeful decision to build a business with a loyal customer base focused primarily on locals. That needs product, price, and convenience. Sonny lives in the Reno area, which is one of the main reasons Silver State is located up North.  

Critical to success has been the culture of the organization. Let’s start with the company being nimble and I’ll give you an example. The early days of the pandemic included the complete shutdown of dispensaries. We went from serving over 1500 customers a day in our stores to the next day being told that we could offer delivery only. Within a week, we were able to pivot and had lockboxes, regulatory approvals and a delivery capability. When you look at our Nevada operation, we ended up with just a 10% dip in our revenues for the quarter, even though we had to live through six weeks of delivery-only and then a phase of curbside-only.

Another key element of the culture is our laser focus on cost management. We’ve talked a little about cost management, but it’s absolutely critical, especially in the context of the high cost of capital that we see in this sector. Add to that the punitive tax impact of 280e where federal tax is applied to gross margins which means SG&A and interest are non-deductible expenses for tax purposes. So, to enhance our profitability, we are intent on having the lowest SG&A of the public cannabis companies. We’re also among the lowest in interest expense. That whole drive for efficiency has given us a formula and a mantra that has allowed us to have a stable business with significant cash flow. We get to make strategic decisions — not hasty or desperate ones — and focus on what’s good for the shareholder.

Aaron: How was C21 capitalized?

Bruce: We did a $33M raise on the RTO of a listed shell company. That was how C21 was established, and then signed contracts with the Oregon and Nevada properties.

Aaron: I recently saw a press release about expanding the Nevada cultivation. Can you give me some more details? 

Bruce: We announced that we are tripling our capacity within our existing 100,000 square foot warehouse facilities. We’re going to build out another 40,000 square feet, and we currently use 20,000. That’s the tripling. Expanding our cultivation was clearly the next logical step in our growth story. This should yield us an additional 7,500 pounds of high-quality flower. We can do this very cost effectively with about $6M in capex, and we anticipate funding the project internally. We will still leave another 40,000 square feet of expansion capacity as market needs justify.

This announcement was significant, but I don’t think it was fully understood by the market. Just to play with some numbers, 7,500 pounds of flower has a wholesale market value today of about $17M. It will cost us approximately $2M in incremental operating expense to add these additional grow rooms. We already pay the rent, so we just need to pay for the people, power, fertilizer and product testing. When you do the simple math, we see this as a big win for shareholders and extremely accretive on an after-tax basis. 

Historically, we always used to grow more than we needed, but with the increase in demand that’s going on in the market, we now run at a flower deficit. In the near term, this build-out will allow is to meet our current retail needs, with the balance that we will sell on the wholesale market. Ultimately, this positions us well on a seed-to-sale basis to support our plans to extend our retail footprint in Nevada. 

Aaron: It sounds like the decision was made based on both revenue growth and supply chain consolidation?

Bruce: Yes, and just the pure profitability of it! You can’t get a bigger, better bang for your buck from spending $6M to generate $17M with ongoing operating costs of $2M.

Aaron: The next question here is about the recent note restructuring and, and how the debentures was restructured. How’d that come about and what is the advantage now of having gone through that process? 

Bruce: This all fits into our medium-term growth strategy. For C21, the first thing we focused on was getting our house in order to ensure that we were efficient and profitable. We knew we needed to have a scalable machine to grow. The second step, which the debt restructuring relates to, was around fortifying our balance sheet. To support our growth plans, we needed to have a solid foundation.

Our balance sheet had two things that needed fixing. One was that we had an $18M obligation coming due to our CEO. The effect of the restructuring extended this obligation over the next 30 months at favorable terms. Additionally, $6.5M of convertible debentures were reaching maturity in January of 2021. And while the debentures were in the money and theoretically would convert to shares, we didn’t want to take the risk that our stock price could drift a bit and all of a sudden there could be significant cash required for redemptions. We’ve seen a lot of companies suffer significant unwanted dilution when their debentures get out of control. So, we approached Wasatch, Jason Wild’s JWAM and CB1 Capital, three seasoned investors, who provided a backstop whereby they would purchase any shares not taken up by people though the conversion of their debentures, so that we would be able to pay any debenture holders back cash with the money we would receive as the investors took shares. In exchange for providing this backstop, C21 gave them an upside participation in the form of warrants. I think it was absolutely critical to get this in place. And it’s phenomenal to have these three names in our corner. We couldn’t imagine better partners.

Aaron: So, what’s next for C21? 

Bruce: I hope you are getting the feeling that here at C21 our objective is to play the long game. That means we make measured decisions with the interest of shareholders top of mind. We’ve worked hard in 2020 to get our house in order, fortify our balance sheet, and generate significant cash flow. I think we’re clocking in at around $12M in trailing annual cash flow, which interestingly, is about the same number that Planet 13 is doing. That’s obviously a fantastic result for a company with $150M of market cap.

“We are working with urgency to break the back of these sector economics.”When we think about our medium-term growth strategy, we will continue to make our decisions through a cash flow and earnings lens rather than hype and flash. While we will remain opportunistic with respect to strategic alternatives, the core of our expansion is going to focus on where we already have a proven track record: Nevada. We’re big believers that to achieve long term success, you have to own your home market. And what I mean by that is today we’re about 5% of the Nevada market. Owning your home market looks more like a 15% share. That is our focus. I think we’ve shown that our disciplined approach delivers results – results such as having top five metrics in Net Income, Cash Flow and EBITDA Margin, across the range of public companies that we can see.

I think it’s key we’re getting noticed. We talked about the strategic investors, but we’re also one of the 17 plant-touching companies that’s in the MSOS ETF. So, we’re going to follow our clear growth trajectory, focused on the bottom line and delivering for shareholders. If you look under the hood right now, you see a 10% cash flowing company, which is a pretty rare bird in our industry. We’re excited about where we are.

One thing I haven’t touched on in great detail is our plans for expanding our retail footprint. How do you grow in the dispensary space? Aaron, I think what’s key here is looking at the expected return relative to the cost of capital. For example, if you targeted buying a dispensary with $20M in revenues, and are able as we are, to generate 25% in after-tax cash based on those revenues, then once optimized, it would generate $5M in earnings. An asset like this is going to trade at roughly one and a half times revenues. So, you’re going to have to pay $30M. For the people that have been going out and borrowing money at 15%, their annual cost would be $4.5M. We’re not going to give four and a half to the moneylenders, it just doesn’t make sense for shareholders. We are working with urgency to break the back of these sector economics. It is something we believe will be afforded to companies with stable earnings and profitability such as ours. Of course, no deal’s a deal until it’s on the tape, but we are very hopeful that we have cracked the code ahead of SAFE Banking to get capital costs down. This is just a little bit of an inside look into our thought processes.   

Aaron: Okay, awesome. All right. That concludes the interview.