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Article 9  Interview with Joe Caltabiano, CEO of Choice Consolidation Corp.

(photo: Canva,

 Richard Hernandez, edited by Shawna Seldon McGregor from Maverick Public Relations

Richard Hernandez [00:00:00]  What is your background in the cannabis industry?

Joe Caltabiano [00:00:38] In 2013, I decided to try to get into the cannabis space. When Illinois passed its medical law, I was a at a company called Guaranteed Rate. I decided to try to apply for some licenses. I asked a few friends to join me on that journey. We raised a million dollars, applied for three licenses on the grow side in Illinois. And lo and behold, we were awarded those licenses in 2015 and Cresco Labs was founded. We proceeded to raise more capital and deploy it to build up Cresco. Cresco went public in December 2018. I served as president until March 2020, and then I stepped off the board in June 2020 to pursue other interests. I believe I still remain the second or third largest shareholder of Cresco. But I have no involvement in the company go-forward. At that time, I came down to Florida and tried to retire but I got bored. I launched Choice Consolidation Corp. (CDXX) at the end of 2020. We went public in February 2021 and raised $172 million in a SPAC vehicle. Now we're in the process of vetting and acquiring assets to build the next generation of US plant touching multistate operator. 

Richard Hernandez [00:02:26] You were with Cresco from the beginning of legalization.  What was that journey like for you? 

Joe Caltabiano [00:02:54] The journey itself has been incredible. Watching a struggling medical program turn into a more robust medical program. Then the transition from medical to adult use and all the trials and tribulations. Illinois enacted adult use through legislation, which has positives and negatives. It typically takes a little bit longer to get through the legislative process, but it also typically includes all the rules. So, the entire program gets consummated with all the different interest groups’ considerations. This ultimately results in a very robust bill that allows you to implement the program relatively quickly. You see states that pass ballot initiatives. Then it has to go to the legislative side and the rules ultimately get made. So, states like New Jersey--which technically passed  adult use a long time ago--still hasn't been able to get off the ground. Whereas Illinois passed legislatively with the full blessing of both sides of the General Assembly. It was able to move very quickly into an operational role. I certainly learned a lot navigating through not only Illinois, but other states along the way, such as Arizona, New York and Pennsylvania. When I left Cresco, we were in 11 markets. 

Richard Hernandez [00:04:31] What is engagement in the cannabis market like from the metropolitan areas versus more rural areas, if any?

Joe Caltabiano [00:04:58] Whether you're Cresco or GTI or whomever, all of the different markets within Illinois act very differently, just like the liquor that sells in Chicago may be different than the liquor that sells in Springfield or how it's even positioned to the consumer.  You have a variety of people who come from all walks of life in a big state like Illinois with a population of almost 13 million people. Different socioeconomic backgrounds. Different lifestyles. Whatever the makeup of the population, you have to have products that resonate with all of the different consumers. Hence why I think a lot of the top tier operators are building very strong brand portfolios--either through a house of brands or a branded house--where they're touching the different consumer segments. Whether that's a value proposition where you're getting more quantity or you're buying an ultra-premium strain with much more robust terpene profile that sells for $50-$70 dollars an eighth. You need to cater to the very different demographics. You'll also see the majority of the MSOs that are in Illinois have a 100% market penetration in the state, meaning their products are on everybody's shelves in that state. It's a bit different than some of the other markets with 3,000 growers and processors like California or Michigan. In Illinois currently, there's only 14 different companies that have a license to grow, manufacture and distribute cannabis. To create the breadth and depth on the shelves, you carry a lot of what you would typically consider your competitors’ products. 

Richard Hernandez [00:07:08] For example, with the Mindy's brand do you find that it was beneficial to go and seek a culinary genius like Mindy? Were you lucky or did you choose these specific types of brands to operate and grow? 

Joe Caltabiano [00:07:44] We tried to put together products that would resonate with who we thought our customers were on a Day 1 position. And that certainly expanded over time. As you go from medical to adult-use, there are different needs for the customers. But along the way, we felt that flavor was an important thing. A lot of times, especially in the early pioneering states, there was less focus on flavor and more focus on effect. We thought that there could be a balance between the two where you could still have the effects you were looking for, but maybe utilize a distillate or something that was more flavorless to then allow a more flavorful edible. And I think you've seen that in a multitude of different brands, whether it's Wana, Incredibles, Mindy's, KIVA, you've seen that kind of progression forward. It's come a long way from the early days of very ‘weedy tasting’ edibles. 

Richard Hernandez [00:08:47] For each state, what was the journey like? Was it an easy sell? Then once you had a certain number of brands within Cresco did you know that these are going to perform well in other states? Or did you see any failures? What was one of the most more challenging markets?

Joe Caltabiano [00:09:14] California is the most challenging marketplace in cannabis. It is the proving ground. But not only does your product need to be a good quality and consistent product that has a strong manufacturing background, but price becomes very important. An unregulated market like California has a fledgling infrastructure as it relates to enforcement. Compare it to a market like Illinois or Massachusetts, where you can be successful if you run a good company and you have the capital and the resources and the team members, again setting aside whatever brand it is. If you could know that it was a level playing field, meaning everybody to the left and right of you is following the same set of rules, and that there was real repercussions for not following the laws and making sure you're paying taxes and all of those things. That's a much easier opportunity for someone like myself to navigate. I came from the regulated banking space and mortgages. So, when everyone's operating in a regulated environment, it comes down to your skill sets and your resources. However, when you're in a market like California, where the illicit market really isn't stunted and there is no enforcement, where people are getting paid in cash, there's no payroll, there's no FICO, there's no Social Security, they're not paying federal income tax, they're not paying state cultivation taxes. All of those things make it a very, very difficult environment to operate in. So, for going forward, Choice’s focus is on limited license markets with strong, regulated regulatory frameworks where best-in-class operators can thrive. Watching the industry evolve--learning from it--has really created what I like to reference back to as a second mover advantage where we know automation will play a big role in the assets that Choice is acquiring. Because as you talked earlier about building brands, it's not only about the quality, the taste, the consistency of the product. But it's about availability and customers now get more and more comfortable with trying different things. They want to become brand loyal. They want to have a propensity to either like Coke or Pepsi, or Budweiser or Miller. They have this affinity towards brands, but it's incumbent upon the brand developers and the manufacturers in cannabis to make sure that product is regularly on the shelf. You don't walk into a store and not find Coca-Cola because their manufacturing broke down, right? But you hear that all too often in cannabis that a customer will walk in and look for something and it's not there. So, they try something else. That doesn't help build brand loyalty. It's quality, consistency. But then also availability, 

Richard Hernandez [00:12:44] You said California is one of the most difficult states to work in. Do you feel at this time that the brands feel that they're missing out and are you specifically trying to get to California or at this time? 

Joe Caltabiano [00:13:09] No, I would not. A focus for Choice is not markets like California. That is not a market, in my opinion, that a publicly traded company can create outsized returns for its investors. The return on investment is much less in a market like California than it would be a state like Illinois or Pennsylvania, or New Jersey or New York. There's too little regulation. That allows gray market or illicit market operators too easy of a pathway to generate revenue. And legal operators are paying taxes to everybody. So, it's not fair. It’s a market that I would avoid. 

Richard Hernandez [00:14:11] Let's talk about taxes. Why do headlines about record breaking state cannabis tax revenues not necessarily coincide with the health of the cannabis industry overall. So, when states boast about tax revenue earned from cannabis, is that cause for celebration for them specifically? And how come other states, let's say, even the ones that directly border them? Do they view that as beneficial? And are they trying to get in on that right now or why not? When states are trumpeting those...

Joe Caltabiano [00:14:42] Tax revenue is obviously beneficial and there are significant funding gaps in many of the states out there. Quite frankly, that's how a lot of states ultimately got comfortable with passing an adult use bill. It really was a tax and regulate kind of idea, and Illinois has done a very good job of that. They have a very strong regulatory framework and it has generated a considerable amount of taxes. The problem again with taxes, though, is if you don't regulate the market and make sure that illicit operators are not participating in that and have the same luxury of growing cannabis illegally as someone who's paying millions of dollars, built out this infrastructure, hiring people, paying their payroll taxes, doing all the right things, if they don't have an advantage in that marketplace, you know there is a problem. So now states like Illinois have a heavy tax, but there's heavy regulation, so it still can be a profitable market for the operators. Whereas California, where the taxes are still significant, but 75-80% of the operators just aren't even paying taxes. That's not a level playing field. Then the state misses out on revenue. The legal operators who are there are under undue burden. It's just not a fair situation. If you look at the price differential between a legal product with taxes and an illegal product with no taxes, now consumers have the opportunity to buy either. So typically, they're going to buy a product that's less expensive and then the state misses out on the taxes because they put a big tax amount on there. And they also didn't regulate the illicit operators to ensure product safety. So, it creates a lose-lose for everybody instead of a win-win. You've got to use some of that tax revenue for enforcement. 

Richard Hernandez [00:17:01] Why does the lack of federal permissibility mean state governments accepting tax revenues are essentially money launderers as interpreted by the Fed’s cut-and-dried definition of money laundering? The federal government right now views cannabis as a Schedule 1 drug. And yes, we have states’ rights have passed it and done it, and they're accepting that money. So what sort of a position do they have?

Joe Caltabiano [00:17:34] To really nail that point down, if you walk into a dispensary in Illinois and you spend $100, the average taxation on adult use of recreational cannabis is about 30%. Of that $100, $70 goes into an operator's pocket and $30 goes into the state's pocket. That $70 in the operator’s pocket can really only go to one of the handful of banks that is comfortable banking the cannabis space. There's a few hundred banks across the country--out of the tens of thousands of banks that exist--but it's by no means going into Chase or Bank of America or Wells Fargo. The $30 goes into the state of Illinois' general fund. That money gets deposited into a Chase Bank or Wells Fargo or Bank of America,  one of the big banks who will accept the government’s tax receipts but not the cannabis owner’s revenue receipts. This money from cannabis taxes is mixed with the tax revenue from gasoline, from alcohol, from car washes, from sales tax, from all of the different revenue generating sources that the states have. It's mixed together, and then it goes to pay teachers and politicians and federal bonds and all of the different things, including the Governor's salary. That's truly what money laundering is: taking that money deemed illegal by the federal government, washed with the legal money that creates this money laundering scheme. If that were you and I doing this in any other scenario, they would seize all the money--and not only the illegal money, but also the legal money it was it was mixed with. Do I really think that the feds will crack down on the state? No. But I like to bring this up because of the absurdity in the rules for operators where they are handcuffed from being able to operate as efficiently as other industries. They're taxed very heavily. But yet the government can take that same money and do with it as it wishes. 

Richard Hernandez [00:19:52] When do you think safe banking and legalization will occur and what's the main holdup? 

Joe Caltabiano [00:20:08] The votes are there. Even law enforcement wants SAFE banking to pass. It's much easier to break up organized crime if you can follow the money. And the problem with cannabis is the legal money unfortunately has to operate very similar to the illegal money. It's very hard to differentiate the two. When you pass something like SAFE banking, it will set a clear opportunity for the legal money to go through trackable channels and the illicit money will be much easier to identify. When that will happen unfortunately is anyone's guess. And the more you're involved in an industry like cannabis, what you quickly learn about D.C. is that the things that are right don't always happen, meaning they could call SAFE banking to the floor of the Senate tomorrow. And it would pass. The problem is the politicians who are charged with bringing it to the floor want more than SAFE banking. They want decriminalization. They want  restorative justice. They want full legalization. They want expungement. All of which are wonderful things. But those items aren't going to pass today. It's going to take more education. It's going to take a bigger lift to get that more robust bill passed. And they're playing chicken with the SAFE Banking Act saying, we're not going to bring this to the floor until you're willing to look at a more robust program. So, the biggest allies, which typically would be the Democrat side of the aisle, are ultimately the ones now standing in the way of progress, unlike business people who try to get small wins. We try to take one step forward. Sometimes they're baby steps, but you don't ever shoot for the Moon. You try to get there through 100 positive steps. The way D.C. works is very different. They go for this shock-and-awe shoot-for-the-moon. But unfortunately, it's just not getting called to the floor. And now I don't see it getting called to the floor as we approach what's going to be a very tumultuous midterm election. Now, politicians shift from trying to do good to just trying to get their job again. 

Richard Hernandez [00:23:08] Why do you think it's most important for state leaders to champion cannabis? And do you think that full countrywide cannabis legalization is inevitable? 

Joe Caltabiano [00:23:22] State leaders have a greater obligation to their constituents to deliver what the will of the people want. And it's just so clear that at a baseline opposing medical cannabis is ludicrous. Now more than 90% of the country supports a medical cannabis program. Then as you look at adult use: it's certainly polling well into the majority now. These state leaders recognize and hear the will of their people a little bit more than the federal side. There's less conflicting interests that stop some of the states from passing a more progressive rule. They also can come in and do their own expungements as you've seen, as a lot of these states have recognized that the War on Drugs has failed. And you have a lot of people incarcerated that probably shouldn't be for offenses that are no longer really even considered offenses. So the states have done a good job of moving forward. And there's plenty of stalls and there's plenty of politicking along the way. But you're obviously seeing a lot of groundswell. And I think that's how other issues that seemed controversial at the time, such as same sex marriage, became federally recognized.  States really led the charge and hit these critical masses for federal legalization. As New York comes online--the financial center of the United States and arguably the world--as the most populous state of California, then, sooner or later, a state like Florida will move forward. As this groundswell continues, it becomes a critical mass. While we're probably there now, it certainly will help when a big state like New York is actually selling legal adult-use cannabis. I do think on a federal level that unfortunately legalization is probably more like eight years away. And what that means is probably putting the ability for the states to ultimately decide what they want to do. But that the product could move from California to Illinois or it can go on the freeways and trucks, interstate commerce will be allowed. States could potentially stop sales within their own states, much like liquor laws aren't the same in every state. So, you'll see some nuances on the state level. But I think unfortunately, it's probably not going to be this President. It's probably not going to be the next President, but it's going to be the following election, which puts us six to eight years away from some big federal change, unfortunately.

Richard Hernandez [00:26:57] But this has truly been an amazing interview, So I want to thank you for your time. 

Joe Caltabiano [00:27:12] It was a great conversation. I really enjoyed. I can't wait to see your article. 

Article Information


Posted: Feb-09-2022

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