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In this edition of "Rising High," The Fly conducted an exclusive interview with Vishal Rungta, co-founder and president of C3 Industries, a multi-state, vertically integrated cannabis company headquartered in Michigan. Here are some highlights:

ORGANIC GROWTH: C3 Industries is a private multi-state operator that cultivates, manufactures and retails high quality cannabis products with a focus on customer service and value. The company offers multiple product brands including Cloud Cover and Galactic Cannabis as well as a retail network, High Profile Cannabis Shop. "We have built our business pretty systematically allowing us to avoid a lot of larger acquisitions for growing," Rungta said. "We've grown the business primarily organically and we have been able to be pretty conservative in how we manage costs as well."

As competition increases, wholesale pricing declines and more supply comes online, cannabis companies will need a good organizational structure to succeed, he said. "For us, having been lean and staying lean is really important so we can continue to produce healthy margins in an increasingly competitive space," the company president said. "Turning our overall focus on ensuring we stay lean has been one big advantage and we have also managed our balance sheet very closely. We don't have a lot of debt like some other players may. We have a much healthier balance sheet which gives us flexibility as we are navigating these increasingly competitive markets."

He added C3 has also differentiated itself by building a real retail presence in all markets the company is in. "We make sure we have enough stores to be capturing enough consumer interest and business that we're able to ride up and down with the market as pricing changes and fluctuates," Rungta said. "We are also a larger buyer, which helps give us some leverage in the marketplace. On the production side, we have managed to keep our costs low and produce high-quality products and we are doing it at a cost of production that we believe will be sustainable."

BRANDS: C3 offers product brands Cloud Cover, an indoor flower brand created for cannabis connoisseurs seeking an elevated experience, and Galactic, a full suite of products aimed at the value consumer. The company also plans to launch Habitat, a brand offering convenient, affordable cannabis products for life's adventures. "Our hope is to launch it later this year and it will be a bit of a sequential rollout," the president said. "We won't launch it everywhere at once, I think we will start in Michigan and maybe in Missouri. Some of the details on exactly what product types it will cover we're still sorting through internally."

As the industry continues to evolve and acceptance rises, the space will see many different types of consumers coming into the marketplace, he said. "Habitat is intended to occupy a different space in the market than Cloud Cover and Galactic," Rungta said. "The exact details of that we are still hammering out."

He noted the company has also seen many consumers seeking more value products in several of its markets. "Frankly, I think the entire U.S. economy is seeing that if you look at what more traditional retailers are talking about," the president said. "Currently consumers are trading out of premium categories into more value categories as things like inflation have been high and there have been various macroeconomic pressures. We are certainly seeing folks focus more on value."

DISPENSARY OPENING: In August, C3 announced the opening of its second retail location in Illinois, High Profile Martinsville, and its 27th dispensary nationwide. "For the last two years or so, we have been working on our platform in Illinois and we have additional stores coming," Rungta said. "Our intent is to get to five to ten stores in Illinois over time. Anytime we enter a market, if we are going to be in the retail business, we don't want to have just one or two stores, we want to have depth and a real presence in the market. You'll see our third store opening in the next few weeks in Illinois."

The company also retails products at High Profile locations in Michigan, Missouri, Massachusetts, New Jersey and Connecticut. "Each of those markets is different in their own way," the president said. "We are really focused on the Midwest and the Northeast. We believe that our experience in states like Michigan can translate well into other Midwestern states and our experience in Massachusetts, Connecticut and New Jersey helps inform us in other Northeast markets. It really is about having a portfolio of retail locations that are complementary and allows us to service as many American consumers as possible. We like the regulatory frameworks in these markets, we believe they all have potential to do a good amount of business, and we believe that our offering will resonate with these consumers."

Additionally, C3 recently opened its first High Profile location in Connecticut in Canton, with a second store expected to open in Hamden in the coming weeks. "Then we have two more stores, so we will have four stores total," Rungta said. "That's well underway with the first location open, the second one coming and a few more months before three and four open. We are also building a production facility in Connecticut and construction has begun on that facility."

In May, NewLake Capital Partners (NLCP) announced the acquisition of a 58,500 square-foot industrial property in East Hartford, Connecticut and entered a long-term triple net lease with an affiliate of C3. NewLake's investment will be $16M, consisting of a purchase price of $4M and a $12M Construction Allowance to retrofit the former cold-storage facility. "We have done business with NewLake before and have a similar style of financing with NewLake in our facility in Missouri," the president said. "They are a group that we have a lot of respect for, and we built a nice partnership together. This allows us to tap into financing that is attractive for building these types of facilities and we think Connecticut is going to be a strong wholesale market for quite some time. We're excited to get that facility online."

PRODUCT CATEGORIES: According to cannabis research firms, flower still holds the biggest share of sales of any cannabis product category, followed by vape. "For the last five or ten years, everyone has predicted that flower would drop substantially and things like edibles and beverages were going to explode," Rungta said. "Edibles have a good amount of market share, but that certainly hasn't played out. It feels to me like flower will continue to be a big part of the industry. There are a lot of folks out there who really enjoy that form factor for consuming cannabis, so I don't see flower going anywhere, anytime soon."

Flower's share of cannabis sales could possibly see some erosion amid new market entrants with different consumption preferences, he said. "Do I see it anytime in the next five to ten years not being the largest category?" the president asked. "Not really. It has demonstrated its resilience at this point. 30 years from now I have no idea, but in this current state, it feels like flower will very much continue to be a leading category."

He added he believes beverages are a form factor that will make more noise over time than they currently do. "They're a pretty tiny category all things considered right now," Rungta said. "But it's a form factor that Americans are very accustomed to, it's easy and it's portable, so I would still expect beverages over a longer duration to gain quite a bit of share."

Additionally, consumers are becoming more knowledgeable about details like minor cannabinoids and terpenes which could drive sales in the future, he said. "We, at our stores, much more regularly hear people asking about, particularly in the edibles category, what might have CBN in it or what might have CBG in it," the president said. "It does feel like minor cannabinoids are certainly gaining awareness, which I think will help move toward sales trends over time. Terpenes have gained prevalence as well. We still have a long way to go though as there is a ton of education, information sharing and awareness to build over time for that to really become a driving force."

SCHEDULING: In August, the Drug Enforcement Administration announced that it would be holding a hearing on December 2 on the proposal to reclassify cannabis as lower-risk and reschedule the drug from Schedule I to Schedule III. "This signifies the ongoing, increasing acceptance of cannabis in the U.S.," Rungta said. "From my point of view, it is a long time coming for cannabis to be rescheduled. It is great to see that it is increasingly a bipartisan issue, where both sides of the aisle seem to be generally in support of rescheduling, but we still have to get it done."

Rescheduling would be beneficial to help the industry get some tax relief as well as several other improvements for the space, he said. "The general assumption is that this would do away with the implacability of 280E for cannabis companies, which would certainly be beneficial to all of us operating in the industry," the president said.  "Then I suspect that this would be the first step in a number of other possible improvements for the industry, so things like SAFER come to pass. That would help open up banking access and further normalize the industry to gain more access to capital markets, which would be beneficial and could really reduce costs for the industry."

The announced hearing strikes down the hope of a Final Rule rescheduling cannabis coming before the 2024 Presidential Election, which has created anxiety for some in the industry, he said. "The general sentiment in the space is that if Harris is elected, the expectation is she would complete rescheduling and she would be very supportive," Rungta said. "With the Trump administration on it, it is a bit more of a question mark. He has recently come out with some public commentary around support for the industry of recreational use in Florida. That certainly seems to be a positive indication, but I'm not sure people really have a great sense, under a Trump administration, exactly what would happen or how he would view it."

CHALLENGES: When asked about the largest hurdles facing the cannabis space, the president pointed to the uncertain regulatory framework as a big challenge in the industry. "By that, I mean a number of things," he said. "Rescheduling is definitely one of them, SAFER is definitely one of them and everything going on in the hemp discussion right now is another big regulatory confusion. Consumers are confused to what it all means and regulators are confused as to what it all means."

The lack of regulatory clarity makes it difficult for cannabis companies to operate, Rungta said. "You're operating under state-based systems, but then there is this overlay of hemp federal regulation and products coming into these state-based systems," he said. "Regulators don't know if they should treat that product the same or differently and the federal government is treating it differently. All that noise and confusion makes its very difficult to operate a business, but also causes a lot of confusion in the market."

OPPORTUNITIES: As the cannabis space develops, Rungta said he sees the biggest opportunities in the amount of consumers that are likely to enter the market. "What is interesting about cannabis is that whatever the addressable market is today, we know it's larger," he said. "We know that there are still folks shopping on the illicit market and there are folks that still aren't comfortable with cannabis. As awareness and education gets out there, there are a ton of additional consumers that will likely enter this space. When you couple that with growing education and information on minor cannabinoids, terpenes and different product types, there is still so much opportunity for innovation and for the market to flex its full potential."

For C3, the company is working on a lot of different minor cannabinoid-based products, the president said. "How do we make sure we have an offering that is not just the traditional product type, but is touching on the different types of use cases people have for these minor cannabinoids?," he asked. "We're also ensuring that we are regularly working on our packaging to make sure we're putting forth the right information. We are always trying to do a better and better job of servicing our consumers, giving them information and helping them make decisions that are appropriate for whatever it is they are seeking. We are inclusively building awareness and accessibility so that more and more new people are entering the space, experimenting, exploring and understanding these products."

CANNABIS/PSYCHEDELIC STOCKS: Publicly-traded companies in the space include Acreage (ACRHF), Audacious (AUSAF), Atai Life Sciences (ATAI), Aurora (ACB), Avant Brands (AVTBF), Ayr Wellness (AYRWF), BZAM (BZAMF), Cannara Biotech (LOVFF), Canopy Growth (CGC), Chicago Atlantic (REFI), Clearmind (CMND), Clever Leaves (CLVR), Cresco Labs (CRLBF), CordovaCann (LVRLF), Cronos (CRON), Columbia Care (CCHWF), Compass Pathways (CMPS), CURE Pharmaceutical (CURR), Curaleaf (CURLF), CV Sciences (CVSI), Cybin (CYBN), Delic Holdings (DELCF), Delta 9 (DLTNF), Entourage Health (ETRGF), Enveric Biosciences (ENVB), Fire & Flower (FFLWF), Flora Growth (FLGC), Trees Corporation (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Hemp (HEMP), High Tide (HITI), India Globalization Capital (IGC), Indiva (NDVAF), IM Cannabis (IMCC), Innovative Industrial Properties (IIPR), InterCure (INCR), Wellbeing Digital (KONEF), Khiron Life Sciences (KHRNF), Lotus Ventures (LTTSF), Lowell Farms (LOWLF), Lucy Scientific Discovery (LSDI), MediPharm (MEDIF), MedMen (MMNFF), MindMed (MNMD), NewLake Capital (NLCP), Numinus (NUMIF), Optimi Health (OPTHF), Organigram (OGI), Planet 13 (PLNHF), Red White & Bloom (RWBYF), Reunion Neuroscience (REUN), Revitalist (RVLWF), RIV Capital (CNPOF), Relmada (RLMD), RYAH Group (RYAHF), Safe Harbor Financial (SHFS), SNDL (SNDL), Sproutly (SRUTF), Skye Biosciences (SKYE), Stem Holdings (STMH), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Tryp Therapeutics (TRYPF), Verano (VRNOF), Village Farms (VFF), Wesana Health (WSNAF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).