What Tobacco and Alcohol Taught Me About Cannabis. ft. Nick Kenny

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Bryan Fields: What's up guys? Welcome back to another episode of The Dime. I'm Bryan Fields, with me as always is Kellan Finney. And this week we've got a very special guest, Nick Kenny, global strategic advisor. Nick, thanks for taking the time. How are you doing today? Nick Kenny: I'm doing well, thanks. Bryan, how about yourself? Bryan Fields: Doing well. Kellan, how are you doing? Kellan Finney: I'm doing well. Excited to talk to Nick today. How are you doing, Bryan? Bryan Fields: Yeah, I'm stoked. We're going to get some tobacco insights, maybe some alcohol insights, maybe some hot takes, maybe some Elon Musk. I'm not really sure where this conversation will go. So, Nick, for our listeners, can you give a quick background on yourself and how you found your way to the cannabis space? Nick Kenny: Yeah, I find it difficult to be quick, but I'll certainly give you a good cover. My background is I started working for a British tobacco company — not BAT, but the other one — in 2010. I moved to the US shortly afterwards and worked for their US entity. I got to the role of director of marketing for their US portfolio. But in 2015, funny enough, the president of the company walked into my office one day, shut the door, and asked me one simple question which kind of pivoted my whole life: 'What do you know about cannabis?' At that point, nothing, apart from consumption on occasion — although I probably shouldn't admit that. For the next three weeks it was a discussion on what this could look like, and then I moved completely, left that business, and moved into exploring the cannabis industry. That was 2016, looking at whether there was potential for a publicly listed entity to move into this space. Over the next year and a half I explored the global environment, state by state in the US, and also Canada, Germany, and other markets. I moved out to California — my argument being that I needed to be in a legal market to see the relevance of it. I did a few additional projects in marketing for the business, but then in 2019 I left that company, moved back to the UK, and started my own consultancy, built on the simple idea that a lot of established big corporations — tobacco, alcohol, pharma — would be diversifying into nascent, highly regulated industries. That's what I've been doing for the last six years. I've worked with some very interesting companies on some very interesting projects. In essence, my platform is building commercial strategies and exploring opportunities for large, highly regulated organizations diversifying into infant, highly regulated but immature industries. Bryan Fields: Was there a single data point, or something specifically during your journey early on when you were researching it, that signaled to you not only that there's something here, but that there might be something major — that made you believe all these big conglomerates would likely diversify into the industry? Nick Kenny: Yeah, I can give you two stories. The first is simple: I went to MJBizCon in 2016, and it was at the Rio — about 5,000 people. I'd say the ratio of legacy proponents, people who had been in the industry a long time and were very authentic, was about 80% of that conference, and 20% were VCs and investors exploring the space. The following year MJBiz moved to the convention center, went from 5,000 to 20,000 people, and the population completely flipped — 80% VCs and investors, 20% legacy people. That showed me there was significant interest and opportunity, and that this could be an industry that's going to be around for a while and stabilize. The second story: I was with some very senior people and we toured a number of markets. I remember going to Denver and finding a dispensary sandwiched between a bakery and a children's clothing store, and just seeing how normalized the industry had become in a very quick timeframe. Those two things were indicators to me that there was real potential here, and it was just a matter of finding the right path to navigate. Bryan Fields: Finding the right path to navigate is the complex piece of the puzzle, right? Because this industry operates a little uniquely — there are regulations that apply from more mature industries like alcohol and tobacco, but there are other nuances that make it more complex, hemp and cannabis being one I'd point to. So fast-forwarding to today, how do outside industries look at this industry? Is your thesis still the same? Walk us through the maturation of your thinking and how the industry has evolved. Nick Kenny: First and foremost, most businesses look for stabilization — the ability to enter a stable market so they have the confidence to acquire or enter and be significant. When it's regulatorily immature or gray, it's very difficult to enter and stabilize market share because you don't know when the rug's going to be pulled, or if it will be. Take a UK entity, for example — especially in the first six or seven years, POCA, the Proceeds of Crime Act, was a huge issue. If you're publicly listed, you've got shareholder agreements, banking, insurance — so many considerations just to enter the space in any shape or form. There are two entry points. If you're a big company looking for the easiest, lower-risk pathway, it's probably something API-related or CBD, or medical cannabis, which today is a more stable marketplace in most countries globally, allowing you to operate across continents. That's the lower-risk entry point for most mature markets. If your appetite is more CPG-related, then you're going state-to-state in the US, or to a more stable environment like Canada, albeit very restricted. Every company has different risk models and aspirations, and when I look at the key players in tobacco, they've all focused on different things that fit their models. But one consistency is that they look at markets that have stabilized — none, apart from potentially Altria, which is already US-based, have really entered the US space. Bryan Fields: When we talk stabilization, one could argue this industry is far from stable — infrastructure is confined to individual states, whereas a tobacco company used to economies of scale would find it ludicrous to spin up separate infrastructure in New York, New Jersey, Maryland, and Delaware. In their position, I'd almost want to see these companies struggle to the point where regulators say, 'We made a mistake, let's open this up to more normalized regulations like tobacco.' Nick Kenny: You're thinking very US-centric. Tobacco companies are global, and many aren't US-based, so they look at markets like Germany, Switzerland, Australia, or Canada, which have more stable frameworks for R&D. Tobacco companies also tend to focus on synergistic adjacencies — vapor, oral devices, pouches, things that aren't plant-touching — because those can be applied to medical markets and then switch to adult use once a market like the US stabilizes and grows. We're still at an early stage; the level of tobacco investment that may seem big is still rather minor and mostly R&D exploration — building IP, learning about the plant, developing the right device for a medical context — while they let the US do what it's doing until it becomes more stable federally. Alcohol is a bit different, because if you're a US-based alcohol company you're very interested in what's happening with hemp beverages, and you have a degree of control — distributors want cannabis because they need the business, while alcohol companies don't want it because it's stealing share. At the end of the day the consumer will decide their consumption pattern and behavior, assuming it's federally stable. But for tobacco, it's much more a global question, not a US-centric one. Bryan Fields: So from a stability standpoint, we're really talking about regulation, not revenue potential. Until there's harmonization in America, no one's going to make the same comparisons, and that's where the lack of stability comes from — not from a lack of revenue being generated? Nick Kenny: If it were purely a commercial decision, companies would have entered years ago. There are federal factors — they can't operate on a national infrastructure the way they're used to, which bleeds into banking structure, banking charters, insurance, all the components restrictive to national entry. They can do pilot testing state by state, and that could be of interest. Whether we believe it or not, tobacco and alcohol companies are all in this space — they're just not telling us about it. There's an R&D house somewhere, often a third party, gathering learnings and data that feeds back into the big companies. So whether they're entering, and how, they're all in it, just in different capacities. It's also a necessity — they have to explore alternatives because their existing product is declining and has been for decades. For tobacco, the first tranche of exploration, as combustibles declined, was vapor and e-cigarette devices in the early-to-late 2000s, then IQOS and reduced-harm products, and now oral pouch delivery systems. When you cease nicotine, what's next? That's where cannabis comes in — a natural, synergistic product profile that's legal to research in many countries, so they build a platform of data, R&D, and IP that they can roll out or acquire once more markets stabilize. What's preventing entry into the US right now is very much the federal regulatory model. Bryan Fields: I love that you called out that everyone is operating here, because just because they're not flying the flag outside their building doesn't mean they're not here doing R&D. They understand their portfolio is decreasing as the consumer moves in a different direction, so they need to invest to grow revenue. But the long-term approach they're taking, with the resources they have at their disposal, is different from most companies in this industry today who are focused on short-term survival — keeping the lights on. Do you see those two trajectories colliding, or does that seem unlikely right now? Nick Kenny: They're currently leveraging expertise in the space to build frameworks for future entry, spending a lot more money doing so, stage-gated, to build infrastructure. BAT openly has Sanity Group in Germany, and Organigram with Jupiter in Canada as their tool to figure things out in North America. They're building expertise and IP to leverage at a future date. Long term it will get closer as markets mature — we see flower becoming a decreasing share of the market, with finished-dose products becoming more applicable. Consumers eat, drink, take pills, use tinctures, apply cosmetics — not everyone smokes — and that's what they lean toward as it becomes accessible. What we haven't seen yet, which tobacco will bring, is standardized, consistent, high-quality products. That's necessary for the future of the industry, medical or adult use — when you buy something, you want the same experience every time. We're getting there with more mature players, but we're talking about high production and quality standards, understanding efficacy — what it does to CB1 and CB2 receptors, how we measure levels of efficacy. I don't think cannabis companies are doing that right now, and I don't blame them — they're in survival mode, operating state by state, dealing with taxes. That's where future capital will come in: building a consistent, nationally scalable model. Kellan Finney: Couldn't they be doing a lot of that in the hemp space though? It could translate to both cannabis and hemp, given the similarities, and there's the D9 issue in hemp right now too — but they don't have the same handcuffs. Nick Kenny: True, but let's be fair — that market is two or three years old. It's been a race to shelf, to build a portfolio of offerings. I'd argue most don't know the perfect milligram dosage for that market, and it varies state by state on thresholds. We haven't even gotten mass exposure yet — hemp beverage is strong because it can be in main retail, but they're not even fully there, still piloting programs like Target. We haven't delved into the full potential yet. Are they thinking about measured data, efficacy, cannabinoid combinations, delivery mechanisms, and effects on the body? Probably not yet — it's too early, it's a rush to shelf right now. Kellan Finney: Could it be, though, that these ingredients are essentially like sugar? Humans consumed sugar forever before we started studying its health effects — like Coca-Cola was around long before anyone studied sugar's effects. Could this end up being something similar, just another ingredient people consume without dying from it immediately? Nick Kenny: What you don't have in that example is the legacy of the product. Cannabis carries hundreds of years of legacy with it — people already have an opinion of the plant, positive or negative, before they even consume it. I think that's the difference — we almost have to study the effects and understand the product before bringing it to market nationally, because that's the concern behind why it's being considered for restriction at the federal level — people worry about what happens when someone consumes it without standards in place. That's the same conversation big companies are having internally. One of the biggest hurdles I've seen in bringing something to a publicly listed board wasn't commercial — everyone understood the commercial opportunity — it was personal: someone's nephew, or someone close, had a negative experience with the plant, and that tainted their opinion. We have to appreciate that people's exposure to cannabis could have been negative before we bring any product to market, and that's why regulation has to be safe and sensible. I don't think prohibition works — it never has. What works is effective but sensible regulation and sensible taxation. Going to either extreme isn't the way to address a highly regulated or potentially harmful product; consumers already have access, and all prohibition benefits is the illicit market. Bryan Fields: Going back to high-level strategy — do you think tobacco companies internally think about this as an arms race, like 'BAT is investing X, we need to invest X to keep up'? Because that kind of positioning and resourcing takes time, and if you wait around, you lose first-mover advantage. Nick Kenny: To some extent, yes, depending on the pressure from their board and shareholders. In the early stages of cannabis, a lot of companies were being asked by shareholders why they weren't exploring a potentially seismic industry. BAT and PMI are certainly looking at each other and trying to beat each other, taking different models. Others just focus on their own business — Imperial, for example, made an initial investment, but now has a completely different board and executive team, and their focus has shifted back to tobacco first, optimizing their existing portfolio before exploring further. Others have had domicile-based restrictions in the past that are now changing — certain Asian tobacco markets, for instance. I think once there's clearer federal regulation in the US, it will become more competitive at that point. For now, most are exploring R&D and making small bets on different investments. Bryan Fields: What about technology — tobacco companies invest heavily in R&D for vape technology and bioavailability. Are they looking to license that technology into the cannabis space as a way to have exposure without being plant-touching? Is that a strategy currently being deployed? Nick Kenny: Absolutely, they've been investing heavily in that space — it makes sense, they're experts with the infrastructure to support it. Would they license it out? I don't know; I'd think they'd rather control it, test through third parties, but retain ownership. Big companies can be patient buyers. I think they're more likely to hunt and acquire what's already out there and bring it in-house, which they've done before, rather than license their tech out. And really, who would they license it to? Those companies are usually looking for funding and capital from the big players, not looking to license out their own tech. Kellan Finney: They could also spin up a shell company to test things out quietly. Bryan Fields: To your point about them hunting for acquisitions — given your relationship in the space, I'm sure you get asked, 'Nick, we're hearing X in the space, should we double down and why?' It's a difficult balance of risk mitigation and being ready to invest, without a perfect answer. Nick Kenny: Absolutely. The risk is capital outlay without immediate revenue return — it's all R&D-centric right now, all cost, planning for a longer-term play. But when you've got billions in the bank, it's easy to commit a hundred million dollars. There's an internal balance of figuring out their comfort level of investment and what they need to do short term to keep momentum and show shareholders some return — developing a pouch, an oral delivery system, something sellable in the CBD medical device market. For companies that have paid millions for PMTA applications on the tobacco side, this is an attainable cost. Bryan Fields: Thinking it through, first-mover advantage doesn't seem to really apply here then. Nick Kenny: First-mover advantage will matter once it becomes federally legal — at that point it's a race to market because everyone has the same playbook to build from, and it becomes about shelf space, consumer attention, and national distribution, which they already have the infrastructure to plug into. In the meantime, they can buy their time. Bryan Fields: Given their political influence, one could argue they'd have a good grasp of which direction federal policy is heading. Nick Kenny: I think you're giving too much credit — politics doesn't quite work that way. They do have lobbying influence, but not necessarily specific to cannabis; different bodies handle different things. If it's FDA-related and built into frameworks they're used to, yes, they have influence. Outside of that, they have to invest to build that influence. They didn't have it many years ago, but they do now. Bryan Fields: Is there anything current cannabis companies can learn from alcohol or tobacco's growth experience — things to keep an eye on for a forward-looking approach? Nick Kenny: There was no innovation in tobacco for decades — cigarettes just were what they were, until decline forced diversification. A number of tobacco companies diversified outside the industry entirely, buying hotel groups, for example, and realized two things: one, they weren't very good at it, and two, they needed to play to their strengths. So they shifted toward adjacencies — inhalation, bioavailability, understanding the consumer. With alcohol, it's about understanding behaviors, experiences, and a sensory model of effects, and building that into adjacent investments. That's what they're doing now — investing in inhalation devices, oral delivery mechanisms, and understanding the plant itself, which is far more complex than nicotine, with something like 140 known cannabinoids. Meanwhile cannabis operators are doing extraction, cultivation, distribution, and retail all at once — a lot of moving pieces. Bryan Fields: If one of them came to you and said, 'Nick, should we double down on one area or figure out what we do best?' Because being average across everything means being okay at some things and not great at many. Nick Kenny: It really depends on their situation — in vertically integrated states, they don't have a choice. But generally, it's always better to be good at one thing than average at everything. When companies come to me looking for investment, there are four or five things I have them review: do they have a good strategy and commercial way to win, a credible management team, and — to your point — a real point of differentiation. Are they a specialist or a generalist? Is that differentiation protected, like IP, or is it just a good business model reliant on brand? If there's nothing unique about the ingredients or process, then the brand needs to be the special thing. If a company doesn't have a clear point of differentiation, my recommendation is to specialize in an area and become known for it, or to build deep consumer data — because consumers today don't think in categories, they think in outcomes and experiences, how something makes them feel and fits into their life. Good consumer data, especially in an industry as data-conflicted as this one, is valuable in itself. Bryan Fields: Data is only as valuable as the actions you take on it though — hoarding data just to hoard it provides no benefit. Nick Kenny: Certainly, I'm not saying build data just to sit on it. But that data itself is an asset of value — you can act on the insights to leverage your own business, or you can sell that data to a data provider or even to competitors. Building it is building an asset; how you leverage it afterward is up to you. Bryan Fields: Perfectly said — the answers are there, you just have to spend the time figuring out how to leverage the asset that's sitting there. Last question for you: what question do you wish more people asked you? Nick Kenny: That's a good question — not a copout, I promise. I think the greatest asset of a fledgling industry like ours is the people you meet and the network you build. So whether it's a client or anyone else, I'd love them to ask me, 'Who do I not know that I should?' I think the knowledge and community in this industry is second to none, and we should be reaching out, making connections, and learning what others are doing as much as possible. That's the question I'd hope people would ask: who do you think I should meet in this industry? Bryan Fields: I love it, Nick. For our listeners who want to get in touch or learn more, where can they find you? Nick Kenny: LinkedIn, under Nick Kenny — if you Google Nick Kenny Cannabis or Nick Kenny Tobacco, I'll show up. I also have a website, kbstrategicadvisor.com, and an email, nick@kbs-consultancy.com. I stupidly didn't think of shorter versions, would have been much more helpful. But happy to connect with everyone — I'm a big believer in getting to have those 30-minute conversations. I tend to drone on, as you've probably experienced, so if you want more of this conversation, I can do that too. Bryan Fields: I love it. Thanks for taking the time, this was a lot of fun. Nick Kenny: Thanks, guys, really appreciate it.