Michigan Marijuana firm secures $16M investment for new grow facility
C3 is projected to turn $250 million in revenue this year with a strong profit margin.
Ann Arbor, Michigan-based cannabis operator C3 Industries closed Wednesday on a $16 million investment to construct a new 58,500-square-foot cultivation facility in Connecticut.
NewLake Capital Partners Inc., a Connecticut real estate investment trust, purchased the property in East Hartford for $4 million and is providing $12 million toward construction costs for C3.
Entering the Connecticut market marks the fifth state for C3 Industries, making it Michigan’s largest multistate operator amid a difficult national market that is wreaking havoc on C3’s competitors.
Twenty of the largest publicly traded marijuana companies in the U.S., most of them MSOs, lost a cumulative $2.3 billion last year, and only one of them turned a profit. That’s despite the group as a whole pulling in more than $8.7 billion in revenues, according to analysis of public filings by Green Market Report.
C3, however, is projected to turn $250 million in revenue this year with a strong profit margin, thanks to its slow, thoughtful approach to growth and by cutting its teeth in the nation’s most competitive and difficult market in Michigan, said C3 CEO Ankur Rungta.
“We’re so different,” Rungta said. “We started our business in Oregon, which was a really challenging market with oversaturation. But we came to Michigan and built our biggest platform here. We’re children of the competitive market. We didn’t oversize our production and took what the market would give us. This is a breeding ground for good operators and being conservative paid off. Now we’re in growth mode with a strong backbone.”
As state markets mature, some MSOs have pulled out due to financial pressures.
Last year, for instance, New York-based Curaleaf began shuttering its dispensary operations in California, Oregon and Colorado. It eventually shuttered its Michigan operations months later at the end of last year.
“We’ve seen MSOs struggling financially nationwide,” John Fraser, partner and leader of the cannabis practice for Detroit-based law firm Dykema Gossett LLP, told Crain’s in an email. “280E is undoubtedly a big part of the equation. Weathering an effective tax rate that hovers around 70% for retailers creates a Herculean obstacle to achieving profitability in the retail sector—which has flowthrough impacts on the entire supply chain. I think operators of all sizes severely underestimated the extent of the price compression and overestimated the runway that they would have before price compression would occur. You add this all together with an aggressive regulatory climate that adds additional expense in a highly competitive industry, and it becomes incredibly challenging to do business at any scale. The MSOs and bigger players just show an amplification of the trends that we are seeing industry-wide because of their increased scale and reach.”
C3 operates 11 of its High Profile Cannabis retail locations in Michigan, three in Massachusetts, eight in Missouri, one in New Jersey and one in Illinois. The company plans to open two retail locations in Connecticut and buy two more in the coming months.
Rungta said the Michigan stores churn about $7 million to $8 million in revenue per location, almost double the statewide average of less than $3 million per store in 2023.
Rungta attributes that success to the company’s vertical integration, relying heavily on the marijuana the company grows as its product line in stores — similar to competitors Common Citizen, Lume Cannabis, and others.
But it’s not all been roses for C3.
The company recently closed its Flint location, and sold its prized Ann Arbor dispensary, which Rungta believed when it opened before the pandemic in 2020 would be among its most profitable thanks to its proximity to Michigan Stadium and the University of Michigan.
“That was painful to let go,” Rungta said. “That was my first or second retail store in the state, but that location was just tough for us to make successful.”
Both Ankur Rungta and his brother Vishal Rungta, who serves as C3’s president and CFO, graduated from the Stephen M. Ross School of Business at the University of Michigan with a bachelor’s degree in business administration. Ankur also attained a law degree at the University of Michigan Law School and became an attorney, before moving on to become an investment banker prior to founding the company.
With five states in its portfolio and cash in the bank, C3 is moving to acquisition mode, Ankur Rungta said.
The company is looking to target new markets like Ohio when that state comes full online later in the year. Ankur Rungta said he’s looking for operators with multiple retail locations with total sales as high as $100 million.
“In the past, we mostly grew organically by winning licenses and building out our footprint,” Ankur Rungta said. “Now we’re looking harder at the acquiring larger operating portfolios.”
