TENACIOUS Labs has burst on to the CBD scene with a string of acquisitions and a goal to be the world’s leading consumer-centric cannabinoid group.
The London-based buy-to-build company headed up by CEO Nicholas Morland and chief commercial officer, Adrian Clarke, announced its arrival in April this year with the purchase of Colorado company Press Pause.
Tenacious Labs quickly followed this with its second US gain in May, contract manufacturer SZM LLC, which supplies B2B customers across North America with premium hemp-derived, cannabinoid-infused products from its Denver, Colorado, site.
Tenacious Labs is now looking to build further over the coming months with the purchase of two as yet unnamed UK ventures.
A raft of product launches are planned for late summer and early autumn as the enterprise looks to break into the wellness and lifestyle markets and capitalise on consumers’ growing awareness of CBD.
Tenacious Labs is owned by search fund Delarki, whose chairman is Adrian Clarke. The investment company aimed at early-stage and discretionary-spend business opportunities, has committed £9.5m of investment to date into Tenacious Labs to support the fledgling company’s buy-and-build line of attack.
Entrepreneur and investor Mr Clarke also has a background in the international spirits sector, whilst Mr Morland is a qualified chartered accountant who holds directorships in a range of industries, including commodities and finance.
BusinessCann writer Jane Hall caught up with Mr Morland and Mr Clarke to find out more about their acquisitions and ambitions for Tenacious Labs, as well as their views on where the UK and US CBD industries are headed.
BC: How did you both meet?
AC: I was looking for help with Delarki. It was a friend of my father’s who recommended Nick as someone who was bilingual between operational investments, which was what I was trying to do and flailing around with a bit. The rest is history.
BC: Do either of you have a background in the CBD industry?
NM: Yes and no! We both have a background in premium discretionary spend, which is really what is involved, and my experience is being bi-lingual in start-ups and investors, particularly in new areas, so many of the issues you have to deal with are one and the same.
AC: I believe the CBD industry is going to closely resemble spirits, both in terms of regulation and how consumers are going to be grouped together in a mature market. We have based a lot of what we are looking at on the post-prohibition spirits model and how it went from the Wild West to something which ultimately slotted in nicely to society and where both investors and operators could effectively forecast consumption habits. That’s really my background, the spirits market, and in particular the premium end.
BC: But why move into the CBD market?
NM: It’s practicalities. We are a business full of people who are smart with lots of experience. We are unusual in having a team where I’m the conventional animal and Adrian is younger but highly representative of the markets that people are going after at the moment.
We are competing with people where you have a bunch of 60-year-olds sat around a table with a wealth of experience and perfectly sensible, but who are talking about what a 20 or a 30-year-old would be doing and why they want to do it.
We can match them on the experience because we have the track record on my side, but Adrian has a much better intuitive understanding of the market that we are going after. So it is about positioning ourselves in a way that plays to our strengths.
BC: How long have you been trying to get into the CBD space?
NM: Nearly two years. We did a series of due diligencies and the like on potential acquisitions as part of the portfolio, and the more we got involved with looking at those things the flakier the stuff we were seeing appeared, and the more we ended up learning about it.
In the beginning we were novices and by the end of the process we found that we knew as much, if not more than, most of the other people out there.
AC: When we decided to take ourselves off to the States we assumed we were going to be four years behind the pack, but really there were a lot of very experienced operators there that were just looking for a fresh new approach and had got to the end of their tether.
They were trying to take what were on the whole very nice businesses into something very investable, and that is what Nick knows better than anyone.
BC: What makes Tenacious Labs different?
NM: Our acquisitions. We are operating in a situation where a lot of other people aren’t. We set off to buy one company and ended up with three because they were so compelling. Our approach is coming from a background of governance and operational confidence. What we are trying to do is make it an investful vehicle rather than something which is a great idea with lots of consumers.
BC: Why did you decide to invest in the US CBD market to begin with?
AC: The more mature businesses that could be picked up were across the Atlantic. The Delarki style is to always go into a larger market, which for us, as we’re English speaking, happened to be the States.
NM: In the short to medium term, 75%-85% of the business is going to be in North America for the entire sector, so we need to be over there as that is where the customers are.
BC: You’ve come a long way in a short time. Do you feel you are progressing quickly?
AC: Yes! Usually it’s the other way around; you think things are going to take a lot less time than they usually do, and it seems to be the opposite here. The appetite both from the investor and operator fronts is tremendous and we have a very strange situation where consumers are almost more sophisticated than the people who are trying to supply them with products. Everyone wants the industry to move on a few notches, but no-one quite has a roadmap yet, which is what we are trying to do.
NM: We were expecting to have resistance and an education process, but it’s not the case at all. Coming at it with monthly management accounts and doing stuff properly with the accountants and lawyers and everything else, has turned out to be more of a USP than we expected.
BC: Do you have a role to play in pushing up regulatory standards in the UK and the US? Here we have Novel Foods, but in the US it’s currently something of a free-for-all with the federal Food and Drug Administration (FDA) agency sitting on the fence.
AC: The US is going through the drug approval route, so the FDA has the luxury of sitting on its hands, perhaps. But I think we can bring a lot, looking at both sides of the Pond, because ultimately this is going to resemble spirits in that there is going to have to be some sort of universal standard.
Consumers will be travelling back and forth, and if you have one product in Colorado and you come back and it looks like it is pretty similar in the UK but what you are ingesting is actually completely different, that is not a long term solution for governments at home or abroad.
So, I think, it is a competitive advantage that we are looking at several markets right at the beginning because ultimately this has to be standardised at international level.
NM: In the US, on a state by state basis, whether it is Delaware or Pennsylvania or Colorado, they are a long way through the legislative changes required. At a federal level it’s much more a matter of tripping over the legislation put into place for larger, illegal drugs issues. It’s just a lot of redrafting required in order to allow people to know what they can and can’t do.
It feels much more like a very large mechanical exercise rather than one where any persuasion is required, and I think particularly with the governments, they all talk to each other, so everyone is looking to see who can come up with a first draft first, and then they will be delighted to adjust it.
BC: But do you think you can bring anything to the regulatory discussions going on in the US?
NM: Very much so, because what you find is when you go to somewhere like Colorado, as we have with these purchases, the people who are involved locally who have the knowledge, are open to accusations of being at the same golf club and things like that, so it is incredibly useful for them to have a third party who isn’t part of the daily round of arguments and who can make a sensible case that can get used as a first draft.
What we have found is that we are a pretty neat way of getting things moving because we are commercial and we are doing this for very straightforward reasons.
AC: We have found that people are very receptive to a different point of view, especially when its not coming from their own back yard, or even their own country.
BC: What is the view in the US on what is happening within CBD here in the UK?
NM: The US has gone through prohibition and they understand that this is something that needs to be done properly. And because they are so divided up between the different states, they are very interested in seeing another country come up with a template that they can then use.
It is seen as a vote winner, it is seen as inevitable, it is seen as something they can raise taxes on, it is seen as something that can provide local jobs, so you are very much pushing at an open door. They are very keen to hear a non-local view about how it should be done.
AC: Because I have been working on the ground in the US, I think there is an acknowledgement, particularly on the CBD side of things, that they feel there is more progress here on the regulatory front, especially with Novel Foods, but also perhaps the pharmaceutical side as well.
BC: Does the US have anything it can offer us in terms of advice on where we should be going?
NM: Their strength is their weakness. They are very much bottom up as they work on a state basis, so they are much more responsive to consumers, they are much quicker to innovate, they are much more interested in developing new industry on the ground. So, bottom up they are stronger than us.
But then they bump into this federal issue. The federal side isn’t anti, it just has no habit of being able to sort these sort of things out effectively. Then, when we come into it they envy our national structure.
AC: There is one thing they do very well in the US, and that is consumer marketing in the CBD industry. I wouldn’t say they are better than us at governance, but they have been at it longer.
BC: You are going to be launching products onto the UK market soon. With CBD companies given a March 31 deadline this year to have a validated Novel Food application submitted to the UK Food Standards Agency (FSA), how are you planning on getting your products to consumers?
NM: We can either have our products made for us by people who do have the authorisations, or we can get our authorisations in the States, which is ironically easier than here, and start new products when we have control of the manufacturing ourselves, which isn’t our first choice, or we can just plough through trying to find trusted partners who have caught up with the registration process themselves.
But the logistics are a challenge.
Ultimately, we are going to have to be smart about how we go about it. There are competitors out there who have sorted out their Novel Food side of things but who are struggling to gain traction in the States. We are in a position to help them.
In real terms, it is going to be a bit of horse trading with competitors on the back of it being a category build.
Novel Foods at this end should be a force for good, so we are very supportive of it. The issue we have had is that a lot of people are perhaps presenting themselves as Novel Foods regulated when it turns out that they are not, and because nothing is really being enforced, the less effective players are still in the market, so you can get a long way to arranging match products and then discover when you do your final due diligence that they don’t tick all the boxes they said they could.
But Novel Foods overall has to be a good thing.
BC: Where do you see Tenacious Labs being in five or 10 years’ time?
NM: In five years’ time we are looking to have a listing on a sensible exchange where there is a sector that is developed, so normal institutions can be investing. So in five years’ time we would like to have a Nasdaq listing and would be looking to consolidate a position in the market. But we have the luxury, because we have the investment, of building up a management team that is fit for purpose in 10 years. We are in the long-term building game.
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