How C21’s Acquisitions Lay the Foundation for a Broader Expansion Strategy
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How C21’s Acquisitions Lay the Foundation for a Broader Expansion Strategy

C21 acquired four U.S. cannabis businesses in 2018, including Oregon’s Swell Companies.

February 14, 2019

After months of legwork in the U.S., C21 Investments acquired four cannabis businesses in Oregon and Nevada in 2018. The busy year fit into a broader strategy for growth in two of the country’s more mature state markets.

C21 Rob Cheney told Cannabis Business Times that the vision leading to the company’s 2018 acquisitions involved laying a foundation for future multi-state expansion—gathering a team with experience in the industry and an eye for the future. 

“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 told CBT in July 2018. “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.” 

Alleh Lindqust, CEO of Oregon-based Swell Companies, which was acquired by C21 in 2018, said that the larger Canadian outfit had been talking to some 200 cannabis companies, getting a sense of how markets were quickly evolving and what it takes, after all, to guide a team to success in this space.

C21 eventually submitted a small collection of term sheets to five companies, including Eco Firma Farms (Oregon), Silver State Relief and Silver State Cultivation (Nevada), Phantom Farms (also Oregon) and Swell Companies. (Terms were also offered and negotiated with Grön Chocolate LLC and Grön Confections, an edibles manufacturer in Oregon, but that deal has since fallen through.)

“I think some people are kind of writing Oregon off a little bit, just because it is flooded,” Lindquist said in an interview with CBT. “What C21 was looking for was … qualified experts in the field that had cut their teeth on a more open industry, as Oregon has been more competitive, and kind of proven that they can succeed in a rough market and build processes to excel. They came to Oregon looking for a team—not so much just businesses necessarily—and then kind of consolidating that team up under the C21 umbrella, and then we're all going out there on a national push or even an international push at this point.”

What that national push will look like has a lot to do with recent actions in Nevada, where Lindquist’s team will be working with Silver State’s cultivation base.

“Oregon is definitely a tough state,” Lindquist said. “There's a lot of competition out there—from mom-and-pop small players to big-time capitalized groups that are in the state. So, for us, being kind of a mid-sized company and seeing how rapidly there are new entrants into the market and needing the capital for us to be able to get out of the state, C21 was just the right option for us.”

Lindquist and his team at Swell hadn’t even been eyeing an acquisition a year and a half ago, he said. The company started out in 2015 in Oregon’s medical marijuana market, eventually transitioning to Oregon Liquor Control Commission oversight and the adult-use market. At the time of the acquisition, Swell manufactured and distributed more than 500 products statewide—including brands like Dab Society and Hood Oil.

Now, the companies who’ve been involved with C21 are finalizing terms and waiting for state regulatory approval to allow licenses to change hands. C21 and Swell entered into a definitive agreement in November 2018. “Acquiring Swell fulfills a critical segment in the company’s expansion strategy making C21 Investments a leading force in processing and manufacturing in the United States,” Cheney said at the time. "Partnering with Swell is a significant move in our national rollout strategy, allowing us to rapidly expand extraction and manufacturing capacity across legalized states as well as bridgehead into fast-growing CBD and wellness product opportunities."

Right away last fall, Lindquist said, Swell started working with C21 employees at its Oregon facility. “It wasn't necessarily an issue of them coming in and saying, ‘OK, we're going to integrate you into our existing platform.’ It was, ‘We're building this platform together.’”

The “family” environment is a key to what C21 is hoping to accomplish, Lindquist said. “The intention is for us to go in and help the processing and grow operations at Silver State kind of expand,” he said. “So, we're excited to bring our technical expertise and scale out there. [Silver State’s cultivation facility is] mostly an open warehouse. At this point, they've only built out about 10,000 square feet of canopy. … It's a platform for us to expand, integrate with them [and] bring our product across the line.”

Similarly, C21 and its acquired companies are looking to other markets for further expansion. States identified by C21 for future acquisitions include California, Washington, Colorado, New Mexico, Ohio, Maryland and New Jersey. On the way to its broader vision, C21 is finalizing its first round of deals from 2018.

On Feb. 4, the company announced that it had completed its Phantom Farms acquisition.

“Our team is keen to be part of the growing C21 family, where we have the opportunity to invest in our business and push our brand beyond Oregon,” said Sky Pinnick, CEO of Phantom Farms and a director of C21 Investments. “Quality, branded consumer packaged goods that are part of a vertically integrated business are key to unlocking the potential of the cannabis industry in the U.S.”