Canada wants a piece of Nevada's pot pie — starting with state's oldest dispensary

Article posted on Reno Gazette Journal

A Canadian firm announced this week that it is purchasing Nevada’s oldest marijuana dispensary business, Silver State Relief based in Sparks.

Silver State Relief, the state’s first medical marijuana dispensary to open in 2014, soon will be 100 percent owned by C21 Investments, a Canadian cannabis company based in Vancouver, British Columbia.

The Canadian company is looking to become the largest publicly traded cannabis company in the world, purchasing dispensaries all across the U.S., said Silver State General Manager Aron Swan. For a local business like Silver State, it’s a chance for the operation to grow faster within Nevada, and be part of something much bigger.

“This is a tough business. Investment capital allows us to expand a little more quickly, rather than organically,” Swan said.

C21 announced Monday that it is acquiring Silver State Relief’s dispensary and cultivation businesses in a deal estimated to be worth $50 million, according to a statement from C21 President Robert Cheney. Silver State is one of the top three revenue-producing dispensaries in Nevada for the past three years, the statement said, although public records are not available to confirm the claim.

Canada, eh?

C21 is just one of the cannabis companies looking to capitalize on the fact that Canada will soon have recreational marijuana legalized on a federal scale, and the U.S. will not. That means that cannabis stock can be traded in Canada, but not in the states.

A publicly traded company, in which there are many owners, can make big money very quickly, and individual liability drops drastically, according to Tom Cargill, professor of economics emeritus at University of Nevada, Reno.

“Trade fits everybody. You can’t have an isolated, insular economy,” Cargill said. “There’s some downside: It’s always nice to have a locally owned business, and customer relationships are less developed when they’re outside managed.”

Many of Nevada’s most lucrative industries encourage public trade, including mining and gaming. Many of the state’s mining companies, in fact, are owned by Canadian firms, Cargill said. Gaming was not viable as a publicly traded business until the 1960s, and before that the industry was monopolized by the Mafia.

Generally, it’s a good thing, Cargill said, so long as local governments do not grant outside agencies tax breaks.

“The local owner makes money, the Canadian company is diversifying geographically. (C21) probably is picking up other dispensaries around the country. There’s clearly profit to be made, and, no pun intended, it’s a growing market,” Cargill said.

Silver State will continue to pay all state and local taxes. But because it will likely have a different classification when filing federal income taxes, Silver State will have to fork over less revenue to the Internal Revenue Service, Swan said.

C21 is buying up other dispensaries in the U.S. It recently acquired another in Oregon. Not all states, though, are friendly to foreign investment.

More than a dozen medical and recreational cannabis states, including Nevada, have allowed out-of-state investors or publicly traded companies to invest in the industry. But Colorado, the first state to legalize recreational marijuana, still prohibits publicly traded companies from owning in-state cannabis companies. The industry there is all locally owned.

Colorado’s ban is a giant mistake from a business angle, said Sen. Tick Segerblom, D-Las Vegas, a vocal cannabis policy advocate during the 2017 Nevada legislative session. Not only can Canadians and Americans buy the stock, but so too can others. A lot of Europeans now are buying up cannabis stock, he said.

“It’s very exciting, and right now it’s all money coming in. We’re so business friendly, so business oriented,” he said of Nevada.

Segerblom sits on the board for a Canadian cannabis company, MPX Bioceutical Corp.

Silver State’s growing footprint

C21 has not purchased Silver State’s facilities yet. The terms of the acquisition give C21 the option of buying the company’s real estate over the next five years.

Silver State currently has 155,000 square feet of grow space and an 8,000-square-foot dispensary in Sparks. Silver State also has a dispensary in Fernley expected to open later this year.

In 2017, Silver State reported $17 million of revenue and the company has generated $15 million in revenue during the first six months of this year, according to Cheney’s statement.

The Fernley location is expected to double Silver State’s revenues over the next 18 months. As part of the terms, C21 is also committing $10 million to further expand Silver State’s footprint within Nevada.