Joe Caltabiano on Life After Cresco, Federal Legalization and Election Day

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It’s been eight months since Joe Caltabiano resigned as president of Cresco Labs, the Chicago-based cannabis firm he co-founded in 2013.

Cresco, one the largest vertically-integrated cannabis companies in the U.S., boasts 1,800 employees across 9 states. It also owns 23 retail licenses, has 19 dispensaries and operates 16 cultivation and production facilities.

Caltabiano, 43, played a significant role in scaling Cresco into the operation that it is today. However, as the company matured, Caltabiano found himself wanting another entrepreneurial challenge.

“If something is not moving at a million miles an hour, it doesn’t excite me quite as much as opportunities that do move very quicky,” he told THCnet during a recent interview.

Since departing Cresco, Caltabiano has spent time meeting with several cannabis industry stakeholders across the country and planning his next move.

In a wide-ranging discussion with THCnet, Caltabiano discussed his departure from Cresco, how he expects the industry to develop in the coming years and why federal legalization might not come as soon as some hope.

Below is part one of our interview, which has been condensed and lightly edited for clarity. Part two will be published this later week.

Chris Furnari (CF): Why did you leave Cresco back in March?

Joe Caltabiano (JC): Starting Cresco was an incredibly exciting thing. When I got into the cannabis space back in 2013, it was certainly uncharted territory. It was exciting to be able to go find friends that I had known for a long time and get them excited about joining me in that adventure. But as Cresco grew from a single state operator, to a multi-state operator, to a publicly traded company with thousands of people, I started to recognize that there were different segments of the business – from the entrepreneurial side, to the growth side, to the stabilization side. And my career has been very much on the entrepreneurial growth side. With any company, you start getting to different plateaus, and have different goals and objectives than maybe even the company you co-founded. As I looked at the cannabis space, I felt there was still an incredible opportunity out there to keep the foot on the gas, and to keep growth being the number one priority. I felt it was time to take a different path, and I left Cresco in phenomenal position. I felt great, as a very large shareholder, but I still wanted to pursue some opportunities in my business career that I just didn’t see occurring there.

CF: What are those opportunities and what have you been up to since?

JC: As I move forward, I am looking for hyper-growth opportunities. When I left in March, I started to look at a lot of distressed assets. My goal is really to look at some distressed opportunities, the addition of new states, and try to execute on MSO 3.0 when the time comes. I’m going to go out, build a similar situation, just do it a little bit faster and a bit more streamlined.

CF: Is there a specific type of channel that you’re looking at? Will you be look at retail opportunities, vertical-integration or cultivation?

JC: The long-term value in the cannabis industry is really in those middle two verticals, which is the creation of branded products and the distribution of those branded products into other people’s stores. I think that is where the long-term margin exists. I think that is where the biggest growth opportunities are, and it is the least likely to get disrupted as further advancement in the legalization of cannabis occurs. The cultivation side of the industry will get disrupted as either more licenses come into play, or interstate commerce comes into play. And I think retail will ultimately get disrupted as more distribution channels come into play -- whether it's home delivery, more retail licenses, or if existing brick and mortar retailers ultimately get into the cannabis space.

CF: Over the long-term, do you expect vertical integration to be the way the industry develops or do you envision retailers, distributors and brands being broken up?

JC: I would want to qualify what "long-term" means. 20 years from now, I think it does get broken up into multiple verticals and people will ultimately have to make some bets on where they want to sit. But over the next five years, I think vertical integration will still exist in a multitude of these markets even if some type of federal change occurs. It’s a long way before interstate commerce comes along, so I think there’s a long runway for vertical operators before they have to consolidate their skill sets and say, "This is where I want to live forever in the cannabis space."

CF: How close are we to federal legalization?

JC: Under the incumbent’s administration, I don’t think you will see anything in the next four years. However, if there is truly a “Blue Wave” that comes through, there is potential. There are a lot of pieces that need to get put in place before we see any type of significant federal legalization, especially if you are talking about a 21-plus adult-use program on a national scale. So, I still don’t think you’ll see that within the next five years.

CF: There are companies making bets that will happen, however.

JC: Of course. The Canopy/Acreage situation is a multi-billion dollar bet toward that. I certainly don't have a crystal ball. These are my opinions based on having been involved in this industry and having had in-depth conversations with law enforcement and legislators at the local level, the state level, and the federal level. It could be the stroke of a presidential pen that changes everything almost overnight. So, there's certainly the potential that you see significant changes, but in my estimation, it won’t occur in the next four-to-five years.

CF: And how about decriminalization?

JC: What's interesting about decriminalization is that it starts to defund the anti-cannabis world. Everyone talks about the revenue that would ultimately be brought in by the legalization of cannabis, but what everyone needs to recognize is that first it has to replace the amount of revenue that's being generated by the illegal side. What I mean by that is when you have something that is illegal, you then have the arrests that generate revenue, the court system that generates revenue, and the incarceration, the jails, and the prisons, that generate revenue. That’s followed by rehabilitation, and parole. You know, that's a giant revenue generator in and of itself. So, it's not like you flip the switch, and you're just getting new revenue. You've got to replace that old revenue stream. The nice thing about decriminalization is that it will start to prevent incarceration, which really cuts the head off of that entire revenue stream, and that will get us moving toward some type of federal legalization. But you’ve still got to get a lot of people on board for something like that.

CF: How about some of the state-level legalization efforts that are happening in Arizona, Montana, New Jersey, and South Dakota?

JC: I think Arizona has a very strong likelihood of passing. It would be pretty unique if Arizona didn’t get this across the finish line. What's very intriguing about Arizona is that it is traditionally a Republican state that sends two Republican senators to the to the U.S. Senate. So, in theory, if the senators represent the will of the people and the people vote to legalize adult-use cannabis, that should add to more votes to the "yes" side of a Republican Senate. That’s a very exciting place to watch, especially because maybe it opens up some of the Southwest. New Jersey also has a high likelihood of passing. The magnitude of importance there cannot be understated. It opens up a significant number of eyeballs. There’s a large population in New Jersey and an incredible amount of wealth. You’ve got a lot of attention on a major scale, giving more and more validity to cannabis legalization, and it puts pressure on New York and Pennsylvania to follow suit.

CF: I’m a big fan of beverages, and very interested to see what happens with cannabis-infused drinks in the U.S. What’s your take?

JC: Right now, you have retail dispensaries that on average are probably about 2,000 sq. ft. In there, you then have a vault that might be anywhere from 100 to 700 sq. ft. And if you look at beverage format size, and frequency of delivery or distribution into these stores, the current cannabis environment is not conducive to beverage. We will need to see some changes from supply chain where wholesalers can deliver that product on a more frequent basis. Beverages also typically taste better when they are kept cold, and you have a storage situation that doesn’t exist in the overwhelming majority of stores. Also, if you look at the regulations around how you can display product – it typically sits behind the counter – it’s just not as friendly of an environment as the beverage industry would like it to be. There needs to be some programmatic improvements. People need to be able to try the product. It needs to become more sessionable. And I think beverage will represent a big part of the segment, but I think we are a few years away from that becoming a driving format.


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