Last Friday, Choice Consolidation Corp. a new Chicago-based cannabis startup led by Cresco co-founder Joe Caltabiano and Green Thumb Industries (GTI) co-founder Pete Kadens announced the closing of a $150 million initial public offering on the Toronto-based NEO Stock Exchange.
Conceived as a special purpose acquisition corporation (SPAC), Choice will use proceeds from the stock sale to acquire cannabis companies in states with large populations and limited competition. Illinois, Ohio, Pennsylvania, Arizona, and Nevada are on the short list, Choice CEO Caltabiano explained to Grown In, with Florida, Massachusetts, Maryland, New Jersey, and New York are also in the consideration set.
“We are trying to put together a really strategic footprint,” said Caltabiano. “Gone are the days of how many states you are in. Today it’s about the impact you are having in the right states and whether you are a top three operator.”
Becoming part of the top THC trio in Illinois will be a trick, at least in the near-term, as Chicago-based Green Thumb Industries, Cresco Labs, and Verano Holdings, which also went public last week on the Canadian Securities Exchange, are today among the largest cannabis companies in the world with a combined market valuation of nearly $20 billion.
These companies, along with Chicago-based PharmaCann and New York-based Ascend Wellness Holdings, are all well capitalized with significant cultivation facilities and multiple dispensary locations throughout the state. Illinois, which became a $1 billion market within one year of legalizing adult-use sales, currently has 21 licensed cultivation facilities and 110 available dispensary licenses.
An additional 75 retail and 40 craft grow licenses intended for social equity applicants are sitting in limbo as market prices for cannabis licenses skyrocket. Earlier this month, chewing gum magnate turned cannabis industry entrepreneur William “Beau” Wrigley Jr. told Forbes magazine that his Atlanta-based multi-state operator Parallel “is in talks for a roughly $150 million acquisition of a dispensary chain in Chicago.” Ascend last year paid approximately $15 million per dispensary location when it acquired the medical and “plus one” retail locations of Chicago-based MOCA Modern Cannabis and Midway Dispensaries in separate transactions.
Current cannabis valuations in Illinois aren’t spooking Caltabiano who transitioned into the industry with Cresco co-founder Charlie Bachtell in 2013 after they worked together in the highly regulated mortgage industry at Guaranteed Rate.
“Expensive is a relative term,” he said, citing as an example Facebook’s 2012 $1 billion acquisition of Instagram, which was eye-popping then but today is worth perhaps 100 times that price tag. “It’s all about what we can do with that asset and how we can increase cash flow.”
While standard SPAC agreements require acquisitions to be made within two years, Caltabiano is “comfortable doing multiple transactions” to become vertically integrated in multiple states within the next three months. In Illinois, this includes competing with Parallel among others for the handful of independently-owned cultivators on the block. As for dispensaries, Choice is paying special interest to the dozen or so incumbent medical operators who by Illinois statute are required to stand up their plus one recreational location in March or risk losing a license.
“I’ll put the chances of a forfeiture of any license in Illinois at somewhere between zero and zero point one percent,” he said, pooh-poohing concerns held my many state operators that the Illinois Department of Finance and Professional Regulation will honor its declared deadline.
Caltabiano and former competitor Kadens figured out how to leverage early licenses in Illinois to build vertically-integrated operations in the same states they are currently targeting with Choice.
“Pete and I always had a great relationship. I think we coined the term, coop-i-tition”, said Caltabiano.
Joining the two as Choice directors are chief financial officer Lois A. Mannon and serial independent board director Lisa Gavales.
Caltabiano pointed to positive relationships he shares with multiple Illinois operators as one of the reasons why Choice is headquartered in Chicago. He left Cresco abruptly last year, and earlier this month Tom Schuba of the Chicago Sun-Times reported a lawsuit Caltabiano settled with Cresco Labs accusing him of creating “a toxic work environment.”
“Mudslinging can occur,” he said, adding that Choice’s offering was oversubscribed despite objections from social impact investors. “You drive relationships with people who know you. I’m excited to jump back in, accelerate growth and provide a return to investors.”