Exclusive interview with Joe Caltabiano, CEO of Choice Consolidation Corp.
Joe Caltabiano stepped down from his position at Cresco Labs in March 2020. Looking for his next opportunity, he was approached by a number of public and private operators looking for an executive. But nothing was quite right. Eventually, through the Senvest team, he connected with people about the idea of putting together a SPAC.
Choice Consolidation Corp. (NEO: CDXX.UN.U) was built with the intention of differentiating itself from a traditional SPAC, with nuances that, according to Caltabiano, would make it more attractive to target companies and future partners. Choice Consolidation CEO spoke to New Cannabis Ventures about the company’s plans to build a top-notch MSO, second mover benefit, and its prospects for industry opportunities. The audio of the entire conversation can be found at the end of this written summary.
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Caltabiano has a background in mortgage lending where he learned a lot about restructuring and finance. As a child, he had leukemia, which resulted in a lifelong commitment to philanthropy related to cancer research. Through this work he learned how patients used cannabis and how attitudes towards it developed among oncologists. When the Cole Memo was published and Illinois launched its medical program, he was ready to get into the cannabis business. He was one of the co-founders who started MSO Cresco Labs. Caltabiano has been in space for years and would like to capitalize on his experience, drawing on both success and missteps.
Choice Consolidation has attracted other cannabis veterans including Pete Kadens, the former CEO of GTI. Lisa Gavales inducts Kadens onto the Choice Consolidation Board. Gavales has expertise in retail and is helping the industry advance digital platforms and e-commerce. This experience will be of great importance for the cannabis sector, according to Caltabiano.
Choice Consolidation’s goal is to focus on markets that Caltabiano says can make a meaningful difference to an MSO. The SPAC is more interested in creating depth in these markets of interest than in creating a footprint based on breadth. It also targets limited licensing markets that offer the opportunity for programmatic improvement. The SPAC is investigating Illinois, Pennsylvania, Ohio, Arizona, and Nevada as it gets started. The aim is to open up at least three of these five markets with your qualified transaction or transactions.
From the perspective of potential deals, vertical integration is an attractive feature. It may consider separate assets like cultivation, but it would try to combine that with a retail store to ensure vertical integration into each of its markets. According to Caltabiano, being part of every part of the supply chain (cultivation, manufacturing, distribution and retailing) helps operators understand their customers.
Choice Consolidation will also be on the lookout for EBITDA positive assets. According to Caltabiano, the SPAC wants to be able to demonstrate financial responsibility and a model based on bottom line results and a high return on the capital invested.
Once the SPAC completes its first deals, it will seek to build on that footprint with additional M&A and de novo license profits as the markets expand further.
As the Choice Consolidation team keeps an eye on developments in federal regulations, Caltabiano anticipates a gradual move. He expects banking changes, tax reforms and some form of decriminalization, but the road to federal legalization may be slower than some think. Interstate trade may one day be possible, but Caltabiano believes that good quality indoor cannabis will always have a place in local markets, even then.
Second mover advantage
Early cannabis operators didn’t have a roadmap to follow. They had to raise funding, build facilities from scratch, and navigate the regulatory environment of a brand new industry. The cannabis business is still new, but Choice Consolidation is positioning itself to take advantage of a second mover advantage.
With the knowledge gained in this area, Choice Consolidation offers a better insight into facility design and capital allocation. In addition, automation is now more available than it was to early operators.
The SPAC was able to raise a significant amount of capital from its IPO, and Caltabiano believes it can raise debt at a lower cost of capital than some of its predecessors. Choice Consolidation is being set up as a second maker with the aim of attracting mature investors. Instead of focusing on planting as many flags as possible, the company will try to combine its growth story with clear execution and free cash flow.
While some MSOs are looking for international opportunities, Choice Consolidation will focus on the US for now. Caltabiano sees the opportunity to build brands in this market first. The company will focus on becoming a world-class MSO in the US before looking into international opportunities.
The right investors
Some investors target SPACs, take back stocks and keep warrants when a deal is announced, and move on to the next deal. Caltabiano was not interested in this type of investor for Choice Consolidation. He wanted to attract fundamental cannabis investors. The team decided to reduce the warrants and lock them on the deal, ultimately weeding out the kind of investors they didn’t want. Choice Consolidation was able to attract investors with a longer approach.
Choice Consolidation raised $ 150 million through the IPO with an additional 15% oversubscription by the underwriter.
Choice Consolidation had set a goal of raising $ 100 million and ended up with $ 150 million with another 15 percent oversubscription from the underwriter. According to Caltabiano, the company was worth around $ 172 million.
From SPAC to MSO
As the SPAC evolves into an MSO, metrics such as margin and margin expansion will be critical. It will also focus on free cash flow, which will help the company be well positioned as debt prices continue to fall. According to Caltabiano, the companies with the strongest free cash flow can access the lowest cost of capital.
As capital markets rejuvenate, first-class operators will attract more capital. Caltabiano is aware that asset prices could rise if the SPAC looks for the right deals. Regulatory changes are also challenging, but Choice Consolidation has put together the capital, team, and business plan that Caltabiano expects to guide future SPACs. He is eager to transact and see Choice Consolidation make the transition from SPAC to the operating company.
Please visit the Choice Consolidation Corp website for more information. Listen to the entire interview:
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Carrie Pallardy, a Chicago-based writer and editor, began her career in the healthcare industry writing, editing, and interviewing subject matter experts from a variety of industries. As a published author, Carrie continues to tell her network of readers compelling, undiscovered stories. Contact us for further information.